France’s economic growth is projected to be modest in early 2024, with a 0.1% increase in GDP for Q1, influenced by budgetary limits and trade tensions. Household consumption is expected to rise, driven by wage growth and reduced inflation, although many may opt to save due to uncertainties. Business investment remains sluggish, and public spending is set to slow. Overall, forecasts for 2025 indicate challenges ahead, with growth expectations lowered by the Bank of France.
France’s Economic Outlook for Early 2024
The National Institute of Statistics (Insee) has projected a modest economic growth rate for France in the first quarter of 2024, impacted by budgetary constraints and ongoing trade tensions between the United States and its allies. The forecast indicates that the country’s gross domestic product (GDP) will increase by only 0.1% from January to March compared to the previous quarter, a decrease from the earlier estimate of 0.2%. However, Insee anticipates a slight rebound with a growth of 0.2% in the following quarter, as outlined in their latest economic report.
Dorian Roucher, the head of Insee’s economic department, noted that while investment trends have shifted, public spending is expected to accelerate. This temporary boost will likely be reversed in 2025 as France begins its budget consolidation, trailing behind other European nations. The government’s 2025 budget, which underwent a challenging approval process, aims for approximately 50 billion euros in savings primarily through cutting government expenditures and increasing taxes on large corporations and affluent households.
Household Consumption and Investment Trends
Insee highlights that household consumption will be a key driver of growth in the first half of 2024, predicting a 0.4% increase in the first quarter and 0.2% in the second. Households are expected to see a rise in purchasing power due to wage increases and pension adjustments, alongside a notable drop in inflation, which registered at 0.8% year-on-year in February and is projected to rise to 1.1% by June.
Despite these positive indicators, many households may choose to save rather than spend, given the prevailing uncertainties both domestically and internationally. The household savings rate is expected to decrease only marginally, from 18.4% to 18.2% by the end of 2024, remaining significantly higher than pre-COVID levels. Roucher pointed out that while the household savings rate could serve as a potential growth reservoir if confidence improves, a decline in the labor market may drive households to increase their precautionary savings instead. The unemployment rate is projected to climb to 7.6% by the end of June, compared to 7.3% a year prior.
In terms of business investments, growth appears sluggish, with an anticipated increase of only 0.2% in the first quarter followed by a decline of 0.4%. Businesses are grappling with the effects of austerity measures and challenging financing conditions, compounded by the unpredictability of U.S. economic policies, particularly in light of tariff threats from the Trump administration.
The impact of these tariffs could reduce global trade growth by 0.1 percentage points to 0.6% in the first quarter and by 0.4 points to 0.3% in the second, according to Clément Bortoli from Insee. Retaliatory measures could further amplify these challenges, particularly for countries like Germany and Italy, which are more vulnerable than France.
On a brighter note, household investments, especially in new housing construction, are expected to stabilize in the second quarter after a decline of 0.3% in the first. Additionally, the contribution of foreign trade, which had previously bolstered growth, is expected to level off, with exports facing headwinds from unfavorable energy prices and competition from China.
Public spending is also projected to slow down, remaining flat at 0.0% in the first quarter before increasing by 0.2% in the second, primarily due to a special law that limited spending at the start of 2025. Insee has not issued a growth forecast for the full year of 2025. Following a 1.1% growth in 2023, the Bank of France has revised its expectations down to 0.7% for the upcoming year, while the government is aiming for a 0.9% growth scenario, which would necessitate favorable conditions such as reduced tariffs, lower oil prices, or a significant drop in the household savings rate.