The French economy grew 1.1 percent for the year 2024, according to official data released recently. This growth, buoyed by the Paris Olympic Games, has been marred by significant downturns, particularly within the fourth quarter, where the economy contracted by 0.1 percent, performing worse than expectations.
Data from the INSEE statistics institute revealed this contraction occurred during a period of political instability. After Prime Minister Michel Barnier resigned in December 2024 following his minority government’s failure to secure support for an austerity budget, the economic outlook grew increasingly bleak. His replacement, Francois Bayrou, now aims to reduce the public deficit from its current levels to 5.4 percent of the country’s gross domestic product (GDP), with aspirations of meeting the European Union's target of three percent by 2029.
Economic experts explain the dynamics at play: “The slowdown at the end of the year highlights the need to adopt a budget to end uncertainties and restore the confidence of households and businesses,” noted French Finance Minister Eric Lombard. Despite the initial boost from the Summer Games, the economy faced significant hurdles as household consumption slowed, recording only 0.4 percent growth during the last quarter of the year. Meanwhile, business investments have shown troubling signs of retracement.
Maxime Darmet, economist at Allianz Trade, remarked on the adverse impacts of the political crisis and its intersection with economic indicators: “There was a significant post-Olympics pullback. Despite some resilience, business investment remains weak. Without the political crisis, we might have expected a stronger recovery, especially with lower European Central Bank interest rates and slightly eased credit conditions.”
This contraction within the French economy parallels struggles experienced by Germany, which also reported a 0.2 percent contraction, thereby bringing the broader eurozone economy to the brink of stagnation. This trend raises concerns about prospective growth across the region, particularly as Bayrou’s government has revised growth forecasts for 2025 down from 1.1 percent to 0.9 percent.
The impact on economic sentiment is compounded by external factors, particularly trade tensions. Sylvain Bersinger, economist at Asterès, expressed unease about the potential fallout from international trade relationships: “Domestic uncertainties, coupled with sluggish growth among France’s main trading partners, do not inspire confidence for the coming quarters. The threat of a trade war with the United States also poses downside risks to forecasts.”
With the political environment remaining tumultuous and the economic challenges mounting, the coming months will require careful navigation. Policymakers will need to implement strategies aiming to restore confidence and stability to avoid exacerbation of the current economic downturn. The interplay between political stability and economic performance will be watched closely, especially as the repercussions of the Olympic impact fade.
Looking forward, the challenge for Bayrou's government is to lay out concrete fiscal strategies to mitigate these economic dips and maintain fiscal discipline, all under the watchful eye of both domestic and international observers. The potential for recovery, though dependent on several variables, remains fragile as both the French economy and its European counterparts brace for uncertain times.