France’s Economy Contracts in Q4, Highlighting Urgent Need for Budget Agreement
France’s economy took a surprising hit in the fourth quarter, shrinking by 0.1% compared to the previous three months, according to flash data released by the country’s statistics agency INSEE. This contraction comes as a blow to the nation’s already struggling economy, which had seen growth of 0.4% in the third quarter of 2024.
Political Uncertainty Weighs on Economic Growth
The Olympic Games in Paris last summer provided a temporary boost to the economy, but since then, political turmoil has taken center stage. The country has been plagued by fiscal challenges, including a significant budget deficit and growing debt pile, which remain unresolved.
Budget Impasse Continues to Plague France
The National Assembly has been deadlocked since snap parliamentary elections were held in June and July, with both the far-left and far-right performing well in respective rounds of the vote. This has led to a series of wranglings over who should govern, culminating in the installation of a conservative government in September.
New Government Faces Uphill Battle
The current government, led by Prime Minister François Bayrou, has been forced to make concessions to the left to garner support for its fiscal plans. However, talks have come close to collapse, and the government’s chances of passing a 2025 budget remain uncertain.
Analysts Predict Grim Outlook for 2025
Economists warn that France’s growth prospects for 2025 look bleak, with political uncertainty and trade uncertainty expected to weigh on business sentiment. J.P. Morgan Senior Economist Raphael Brun-Aguerre predicts that French GDP will only expand modestly in 2025, by 0.5%.
France’s Fiscal Challenges Remain Unresolved
The country’s budget deficit is expected to stand at 6.1% of GDP in 2024, and the government’s forecast of 0.9% GDP growth over 2025 as a whole looks increasingly difficult to achieve. The uncertainty surrounding the 2025 budget and the possible fall of the Bayrou government continue to weigh on domestic demand, casting a shadow over the country’s economic future.
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