By Emilie De Maerschalck, SOAS University of London
All opinions are those of their respective author, and are not indicative of the stance of EUPS.
The National Institute of Statistics and Economic Studies (INSEE) recently published a report estimating that France’s annual growth should be only 0.8% for 2025, compared to 1.1% for 2024. This low growth rate is damaging public finances, whose deficit already stands at 5 to 6% of GDP. As public deficit is created by insufficient GDP growth, this situation has forced France to borrow, raising the country’s debt to 3,345.8 billion euros. It is important to note that most countries are indebted; this is how the global economy works. However, excessive debt remains a significant obstacle, even for an economic powerhouse such as France.
The French economy is one of many that never fully recovered from the 2008 economic crisis. This fragile foundation has been weakened by a radicalisation of neoliberal policies, particularly during the last decade under President Macron. This has prevented the proper redistribution of capital, weakened the labour market and led to a crackdown on the welfare state.
The dissolution of the National Assembly in June 2024 was a trigger for the decline in business, marking France’s decoupling from the rest of the eurozone. The political instability that ensued in the country continues to be an important factor that many, including business leaders, point to as one of the causes of weak economic growth.
Uncertainty is indeed a scourge for business, with corporate investment having fallen by 3.5% since 2023. While this uncertainty for businesses is partly due to the US administration’s recent sharp fluctuations in tariffs, it is also due to a lack of clarity on the part of a constantly changing French government and its economic policies. Businesses are therefore reluctant to spend, creating a lack of dynamism which is crucial for economic growth.
This pattern is also evident among individuals. Household consumption has only progressed by 0.5% compared to 1.0% in 2024, yet it has historically been a driver of economic activity. Lack of confidence in the future due to the unstable political and geopolitical climate and repeated austerity budgets is pushing the French to save more. The French savings rate has reached levels not seen for 45 years (excluding the COVID-19 period). A telling example is the automotive sector, which is at its lowest level since 2013. French people are reluctant to make large purchases and are favouring their savings accounts, which is evidently a drag on the economy.
Public investment has also fallen, down 1.5% since last year. This is particularly true of local authority spending, which accounts for 60% of total public investment. This decline is due to the massive budget cuts targeted at local public services in the Barnier and Bayrou governments’ budget proposals. Political uncertainty is therefore also forcing them to make preemptive cuts, undermining the financial health of businesses (especially small ones) and citizens in their areas.
However, certain indicators have demonstrated the resilience of the French economy. In June, INSEE predicted growth of only 0.6% for the year, but the agriculture, tourism, real estate and aeronautics sectors showed stronger momentum, raising the forecast by 0.2%. Household investment is also expected to increase thanks to the end of the new housing crisis, which will also boost growth in the construction industry. Public consumption, i.e. services provided to households (education, defence) and services provided by private actors paid for by the state (healthcare), has maintained a similar growth to last year’s. The labour market is also proving very resilient, with an unemployment rate of 7.6%, only 0.2% higher than in 2024, a much smaller increase than expected. This is partly thanks to the catering and accommodation sectors, which have been kept afloat by tourism. They are creating new jobs and helping to offset other sectors where redundancies have exceeded recruitment. In addition, France has maintained a relatively low inflation rate of 0.9% compared to 2.1% for the eurozone. Wages have also risen overall at a rate higher than inflation.
However, growth in the eurozone is increasing, 1.4% this year vs 0.8% in 2024, increasing the gap with France. This growth is partly because the eurozone is experiencing a recovery in investment, a rebound in the property market, and companies are benefiting from relatively low oil prices. The economies of Germany, Italy and Spain, for example, have much more positive prospects than that of France.
Circling back to debt, France has committed to its European partners to return to a deficit of 3% of GDP by 2029, with a target of 4.6% for 2026, which would require savings of 40 billion euros. This debt issue has been a major source of political instability and one of the main reasons for the vote of no confidence in the Bayrou government, leading to its downfall. The budget proposed by François Bayrou suggested savings of 20.8 billion euros, particularly at the expense of public services and 7.1 billion thanks to a ‘blank year’, which means a freeze on pensions and social benefits. He also expected 15.9 billion euros in additional revenue linked to the crackdown on tax evasion. This budget, which will now not be implemented, was heavily dependent on contributions from the poorest sections of the population. According to the French Economic Observatory (OFCE), this budget would have disproportionately affected the poorer population, taking away 1% of their disposable income compared to 0.3% less for the wealthiest. This would undoubtedly have added to the inequality that continues to grow in the country. It should be noted that the 500 wealthiest French individuals owned 10% of GDP in 2010, and by 2025, their wealth will amount to around 50% of GDP, according to Challenge magazine. The budget was all the more austere given that France has committed to investing 3.5% of its GDP in defence by 2030. This will most likely require budget cuts of around 0.7% per year per sector in all other state-provided services, which have already been under pressure for years. It is budgets like this that scare the French, pushing them to save more and thus slowing down the economy even further.
However, the opposition to the government, particularly on the left, does not believe that budget cuts are the solution to helping the French people. The Zucman tax proposed by the Greens, recently voted through the National Assembly but rejected by the Senate, could have raised 20 billion euros by taxing the wealth of the 1,800 richest French people at a rate of 2%. This new revenue could have avoided all budget cuts to public services. However, while rejecting this proposition, the Senate has set up a commission of inquiry to investigate the 150 billion euros in aid to businesses, much of which is illegitimately captured by large multinationals. This is a drain on resources that would be useful for the state to remedy.
Less austere solutions do therefore exist. But with the appointment of Sébastien Lecornu as Prime Minister, a figure well to the right of the political spectrum and ex-minister of armed forces, the chances of a more socially conscious budget being announced in the coming days appear very slim.
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