The French statistics institute raises the GDP growth for this year by two tenths, to 0.8%, although distrust in companies and households continues to weigh
In this turbulent week for France, with a change of Government and protests in the streets, the only positive news comes from the economic sphere. The French National Statistics Institute (Insee) has revised upwards the country’s growth forecast. GDP will advance 0.8 this year, two tenths more than last June’s calculation, thanks to the boost from sectors such as aeronautics and tourism. The Government’s forecast is 0.7%.
The organization published its report on the economic situation this Thursday, which does not anticipate buoyant growth, but at least it does not worsen the indicators. It comes after the resignation of former Prime Minister François Bayrou last Tuesday after losing a vote of confidence in the Assembly the day before due to his unpopular budget cuts.
As Dorian Roucher, head of the Insee economics department, explains to EL PAÍS, “this slight improvement in activity is linked to the good performance of very particular sectors, such as aeronautics, to the reactivation of the real estate market after three years of decline, and to the agricultural sector, with better harvests than last year.”
Aeronautical production grew by 7% and another surprise came from tourism. “We did not expect such good numbers, after the Olympic Games last summer we anticipated a certain slowdown, but that has not been the case,” he points out.
These four sectors have kept the weak activity afloat in the second quarter, which grew by 0.3%, one tenth more than anticipated, after zero progress in the first. “Despite the gloomy outlook, growth will resist in the second half,” with advances of 0.3% and 0.2%, says the organization.
Global uncertainty weighs, but above all the internal uncertainty derived from the political crisis, and this translates into contained consumption, the main problem, since it is the growth engine of the French economy. According to Insee, it will remain stagnant at 0.5% this year while savings increase by 18%. “The lack of confidence persists, household consumption does not rebound and the household savings rate does not stop rising every quarter, which shows the lack of optimism,” explains Dorian Roucher.
The instability dates back to June last year, when Macron dissolved the Assembly and called early legislative elections, which left Parliament fragmented and without majorities. Since then, the blockade situation has already knocked down two prime ministers, Michel Barnier and François Bayrou, in their attempt to carry out budget packages with historic cuts. Sebastien Lecornu, appointed on Tuesday by the president, Emmanuel Macron, is the third that the country has in a year.
According to the Insee expert, “it is difficult to predict the impact of the current crisis on economic indicators in the coming months, but we do see that for a year now uncertainty has weighed on activity and on the household and business side it has deteriorated,” adds Roucher.
If this distrust persists “it would weaken the fragile” economic activity, while a recovery of confidence, if the political situation stabilizes, “would unblock purchasing behavior,” says Insee in its current note.
Before the summer, Bayrou presented budget cuts of almost 44 billion euros, which he justified by the urgent need to reduce the country’s high debt. French debt represents 113% of GDP and is one of the highest in the EU. The deficit is 6% and the objective of Bayrou’s cuts was to reduce it to 4.6%.
This in a context in which the economy is slowing down, unlike other European countries. French GDP rose 1.6% in 2023, softening to 1.1% last year. If the forecasts are met, it will increase by 0.8% in 2025. “The French economy is going against the current of Europe, the same uncertainties weigh, but the particularity is the lack of consumption and a savings rate that does not stop growing.”
Bayrou’s decision to submit to a vote of confidence has raised alert in the markets. This Friday the Fitch rating agency will announce whether or not to downgrade France’s rating, which measures a country’s ability to pay its debt without problems.
A year ago he already gave a warning and maintained the note with a negative perspective, given the “budgetary imbalance”, although he highlighted that France “has a large and diversified economy, with solid and effective institutions.” A downgrade of the grade this Friday could further slow down company investments and continue to reduce household consumption.