France’s economic outlook has been downgraded for the coming years, with the central bank revising its growth forecast for 2025 to just 0.9%, down from the previously predicted 1.2%. This marks a continued period of uncertainty for the French economy, as political instability and a gridlocked budget add pressure to an already fragile financial landscape.
The Bank of France’s revised forecast follows a growth rate of 1.1% in 2024 and a reduction in the 2026 growth projection to 1.3%, down by 0.2 percentage points. The bank expects a similar growth rate of 1.3% in 2027, with wages expected to outpace inflation. However, the revised outlook comes amid increasing concerns over the country’s fiscal health.
Compounding the economic strain, international ratings agency Moody’s downgraded France’s credit rating to Aa3 last week, citing concerns over a growing national deficit. Moody’s predicts that the deficit will rise to 6.3% of GDP in 2025, far above the EU’s limit of 3%. France had already faced disciplinary measures for overspending in 2024, with the deficit forecast to reach 6.1% of GDP this year.
While the central bank is slightly more optimistic than Moody’s, predicting a deficit of between 5% and 5.5% next year, these forecasts were finalized before a major political crisis unfolded. Earlier this month, a budget-related dispute led to the collapse of the government, resulting in the ousting of former Prime Minister Michel Barnier and the appointment of François Bayrou.
With no 2025 budget bill in place, France is now scrambling to pass emergency legislation to prevent a government shutdown. However, the central bank has warned that such emergency measures would likely increase the deficit, potentially requiring income tax hikes of around €4 billion.
The political situation remains tense, as the French National Assembly is deeply divided following a controversial snap election earlier this year. No single party holds a majority, leaving Bayrou with the challenging task of uniting fractured factions to push through critical legislation.
Bank of France Governor François Villeroy de Galhau has urged French politicians to set aside differences for the sake of the country’s credibility on the global stage. Meanwhile, inflation is projected to be 2.4% in 2024, with a slight decrease to 1.6% in 2025 and a rise to 1.9% by 2027, influenced by the tax policies implemented under Barnier’s administration, which may change under Bayrou.
As France navigates both economic and political challenges, the road ahead remains uncertain, with the potential for significant fiscal adjustments looming.
