The Prime Minister of France, Michel Barnier, already has his draft budget and experts think that the French Government’s growth, debt and deficit forecasts are very optimistic.
The French Observatory of Economic Situations (OFCE, for its acronym in French) published a study in which they assure that GDP growth will be limited to 0.8% in 2025, after an expansion in economic activity of 1, 1% in 2024. And they predict that the deficit can hardly reach 5% in 2025, as Bercy plans (as the French Ministry of Economy and Finance is known), but that with this Budget project, at most, will reduce it from 6% in 2024 to 5.3%.
Already at the time, the High Council of Public Finances (HCFP, for its acronym in French) said that Barnier’s predictions are “fragile due to the optimism of the macroeconomic scenario on which it is based.”
As highlighted by the French think tank, the cause of this deficit becoming entrenched is “the recessive effect” of the Budget. This would also shorten growth by 0.8 points, they calculate.
For its part, this entire recessive combination of lack of growth and increased deficit would cause public debt to grow to 115% of GDP at the end of 2025, compared to 112.8% at the end of this year.
Likewise, experts from this body dependent on the Sciences Po higher education school question the executive’s figures. According to Barnier’s accounts, the French treasury needs an adjustment of 60 billion euros in the next fiscal year. Of that total, a third will correspond to tax increases and two thirds (40,000 million) to cuts in public spending. In the report they explain that “approximately”, 60% of this adjustment would come from “increased income”, while the other 40% would be from “reduced spending”.
The economic institute added in its forecasts a series of variants that are not present in the budget document prepared by Bercy. If these variants are integrated, for example, in the area of energy transition, growth “would fall by around 0.1 additional points,” the think tank states in its analysis.
The fall in rates would add 0.4 points to GDP but political uncertainty would subtract 0.2
The outlook for these more restrictive budgets is a much softer monetary policy. Taking all this into account, OFCE economist, Mathieu Plane, assured that the drop in interest rates “should add 0.4 points of growth in 2025, which is not trivial,” he assured.
On the other hand, despite the favorable conditions in which they will find themselves in Bercy with this more orthodox and restrictive budget, the fragmented political landscape in which the Gauls are now immersed will cause 0.2 points to be subtracted from growth on next year, according to the estimates made by the organization. In this exercise, they calculate that political instability subtracted 0.1 points from the French GDP.
Thus, OFCE estimates predict that next year will be “much slower”, with economic progress at a rate of 0.2% quarterly, which will be driven by the domestic consumption of French households and, to a lesser extent, for foreign trade of goods and services. In any case, and despite the recovery of real wages, purchasing power should fall slightly. Specifically, they estimate that it would be 0.2%.
“While in 2024 social benefits increased significantly, in 2025 this will not be the case. Asset income was also expected to decrease with the fall in interest rates,” explains Mathieu Plane. Purchasing power would also suffer the negative effect of a slowdown in the labor market, which would begin at the end of this year.
Precisely, the labor market is going to be greatly affected by these recessive effects of Barnier’s Budgets. The tink tank predicts that 163,000 jobs will be destroyed. For its part, the reform of reductions in business contributions, which will imply 5,000 million euros in savings, would mean the elimination of about 15,000 jobs in the first year. This implies, according to experts, an increase in the unemployment rate to 8% of the active population at the end of 2025, compared to 7.5% at the end of 2024.
Barnier is going to have a difficult time putting these budgets forward, but the goal is for them to be approved by the National Assembly at the end of the year.
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