The Bank of France projects modest GDP growth of 0.1% to 0.2% in early 2025, driven by the services sector despite ongoing uncertainties. A preliminary assessment indicates slight growth from January to March, supported by improved business activity. However, challenges persist in sectors like metallurgy and construction, compounded by trade tensions and budgetary concerns. Overall, a GDP growth of 0.9% is expected for 2025, while inflation shows signs of stabilization and unemployment slightly decreases.
Outlook for French Economic Activity in Early 2025
The Bank of France announced on Tuesday its projections for a modest rise in French economic activity during the first quarter of 2025. This anticipated growth, which is expected to be between 0.1% and 0.2%, is largely attributed to the services sector, even amidst ongoing budgetary and trade uncertainties. This increase follows a period of growth observed at the end of 2024, discounting the negative repercussions from the recent Paris Olympic and Paralympic Games.
In a preliminary evaluation, the institution outlined that the country’s gross domestic product (GDP) would exhibit slight growth from January to March. The monthly business survey conducted from late January to early February supports this trend, revealing a gradual uptick in activity among businesses, although fluctuations are expected from month to month, according to Olivier Garnier, the chief economist of the Bank of France.
Sector-Specific Insights and Challenges
The National Institute of Statistics and Economic Studies (Insee) reported a contraction of 0.1% in GDP during the fourth quarter of the previous year, primarily due to the effects of the Olympic Games, which had previously spurred growth.
In January, around 8,500 surveyed companies noted an unexpected surge in activity, particularly in the industrial, market services, and construction sectors. The automotive industry, for example, experienced a rebound following extended closures in December. However, the metallurgy sector is currently facing a downturn.
Despite this, February is projected to witness a slowdown in activity, with services expected to face significant deceleration while the industrial sector stabilizes. Aerospace is anticipated to see growth, contrasting with declines in chemistry and metallurgy. The construction sector is also likely to experience a slight decline, with companies reporting cautious demand for individual and collective housing, as well as public orders.
Concerns regarding order books remain prevalent, especially in automotive, plastics, and metallurgy sectors, where levels are notably low. Only the aerospace sector appears to be thriving amidst these uncertainties. The Bank of France’s uncertainty indicator, derived from a textual analysis of company feedback, has escalated, particularly in construction, reaching levels not seen since March 2022.
Construction companies have voiced their apprehensions regarding government schemes like MaPrimeRénov’ and zero-interest loans amid the prevailing budgetary uncertainties before the parliamentary approval of the budget. Additionally, caution from clients has been highlighted as a contributing factor.
Trade tensions with the United States, particularly threats from Donald Trump to impose higher tariffs on European imports, add another layer of uncertainty. Recent developments include the American president signing decrees to implement a 25% tariff on steel and aluminum imports starting March 12, with the European Union promising a robust response.
Looking ahead to 2025, the Bank of France projects an overall GDP growth of 0.9%, aligning with forecasts from the government of Prime Minister François Bayrou. Insee anticipates a 0.2% growth in GDP for each of the initial two quarters of the year.
On the inflation front, following a significant post-pandemic surge, the Bank of France reported signs of stabilization. The proportion of companies raising their prices in January has returned to levels close to or lower than those seen prior to the Covid-19 pandemic. Recruitment challenges have also eased, with only 26% of companies reporting difficulties, marking a 4 percentage point decrease since December. Notably, despite job losses and a deteriorating labor market, France’s unemployment rate saw a slight dip of 0.1 points in the last quarter of 2024, settling at 7.3% of the active population, as per Insee’s data.