The economic situation in France has taken a worrying turn as the nation closes out 2024 with indicators showing instability driven predominantly by political unrest. The economy experienced a contraction of 0.1% of its Gross Domestic Product (GDP) during the fourth quarter, compounding worries amid rising public deficit levels, which have now reached 6% of GDP. This positions France as one of the worst performers within the eurozone, reflecting broader concerns about the country's financial health.
According to data from the National Institute of Statistics and Economic Studies (INSEE), the contraction follows modest growth of 0.4% earlier in the year, which had benefitted from the temporary economic boost of the Paris 2024 Olympics. By the close of the year, it became evident this momentum could not be sustained. Household consumption, which had shown some vitality, has now slipped sharply, declining from an increase of 0.6% to just 0.4%. On the flip side, business investments are hitting stagnation levels, frustrating entrepreneurs and business leaders alike.
Bernard Arnault, the CEO of luxury goods conglomerate LVMH, publicly voiced his discontent, saying, "Excessive taxation pushes companies to invest outside of France." His remarks signal growing concerns within the business community about the country's investment climate. The French Business Federation, known as Medef, has mirrored these sentiments, reporting a “real deterioration” in the business climate. The federation cautioned about rising “anger” among entrepreneurs, highlighting the disconnect between government policies and the realities businesses face.
The political backdrop to these economic woes cannot be overstated. Following the dissolution of the National Assembly earlier in June, the new Prime Minister, François Bayrou, grapples with significant challenges. He faces a pivotal vote on the 2025 budget, which aims to implement savings exceeding 50 billion euros. This goal, to reduce the deficit to 5.4% of GDP by the following year, appears increasingly ambitious if not outright unattainable against the current fiscal realities.
The mood among international investors mirrors the growing fears on the domestic front. The disparity between French and German borrowing rates for 10-year government bonds is widening, with French interest rates now outpacing even those of Spain and Portugal. This alarmingly atypical situation serves as a clear indicator of the deteriorated perception of French creditworthiness among the financial markets, casting shadows on the country’s appeal as a nation to invest in.
Looking forward, the year 2025 appears bleak for the French economy, with anticipations of only 0.5% growth, significantly lagging behind government projections. Businesses and analysts alike are bracing for more challenging times, particularly with unemployment and economic insecurity exacerbated by the political crisis. The Bayrou government finds itself walking a tightrope, needing to balance necessary deficit-reduction measures with the urgency for bolstering economic support to alleviate the growing discontent among the public and business sector.
Entrepreneurs and business leaders are voicing intense frustrations, reflecting their belief the beneficial policies of the past under President Emmanuel Macron have been upended. The once-celebrated efforts to reduce taxation and promote business growth seem to have faltered post-dissolution of the Assemblée Nationale. Business executives feel reality has forced them back to advocating for tax concessions and relaxing regulations, fearing stiff competition both domestically and globally.
The conversations around trade, investment, and business policy are turning increasingly dire. Leaders are articulately expressing concerns about foreign economic pressures from both the U.S. and China amid warnings from high-profile figures such as former Italian Prime Minister Enrico Letta and former European Central Bank President Mario Draghi. The atmosphere is pervaded with inquiries related to France's resilience against external shocks and whether the government can stabilize the country politically and economically.
Against this backdrop, the upcoming days, weeks, and months could serve as pivotal moments not just for the Tas hükümeti but also for the broader economic future of the nation. The level of cooperation between various sectors of society and the government will play a decisive role as France attempts to navigate its most challenging period of political and economic instability