French Prime Minister Michel Barnier already has his draft budget and experts believe that the French government’s growth, debt and deficit forecasts are very optimistic.
The French Observatory of Economic Situations (OFCE) published a study in which it ensures that GDP growth will be limited to 0.8% in 2025, after an expansion of economic activity of 1.1% in 2024. And they predict that the deficit will hardly be able to reach 5% in 2025, as planned by Bercy (as the French Ministry of Economy and Finance is called), but that with this budgetary project, at most it will be reduced from 6% in 2024 to 5.3%.
Already at the time, the High Council of Public Finances (HCFP) declared that Barnier’s forecasts were “fragile due to the optimism of the macroeconomic scenario on which they are based”.
As the French think tank points out, the cause of the entrenchment of this deficit is the “recessive effect” of the Budget. This would also reduce growth by 0.8 points, they calculate.
For its part, this whole recessionary combination of lack of growth and increasing 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 graduate school question the executive’s figures. According to Barnier’s accounts, the French Treasury would need an adjustment of 60 billion euros during the next fiscal year. Of this total, a third will correspond to tax increases and two thirds (40 billion) to reductions in public spending. In the report, they explain that “approximately”, 60% of this adjustment would come from an “increase in revenues”, while the remaining 40% would come from a “reduction in expenses”.
The economic institute added to its forecasts a series of variants which are not present in the budget document prepared by Bercy. If these variants were integrated, for example, in the area of energy transition, growth “would decrease by around 0.1 additional point”, specifies the think tank in its analysis.
The rate cut would add 0.4 points to GDP but political uncertainty would remove 0.2
The prospect of these more restrictive budgets is a much looser 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 insignificant”, a- he assured.
On the other hand, despite the favorable conditions in which they will find themselves at Bercy with this more orthodox and more restrictive budget, the fragmented political landscape in which the Gauls are now immersed will reduce growth by 0.2 points next year, according to the estimates made by the organization. In this exercise, they calculate that political instability has subtracted 0.1 point from French GDP.
Thus, OFCE estimates predict that next year will be “much slower”, with economic growth at a rate of 0.2% quarterly, which will be driven by the domestic consumption of French households and, to a lesser extent , through foreign trade in goods and services. services. In any case, and despite the recovery in real wages, purchasing power would decrease slightly. Concretely, they estimate that it would be 0.2%.
“While in 2024 social benefits increased significantly, this will not be the case in 2025. We also expected that wealth income would decrease with the fall in interest rates,” explains Mathieu Plane . Purchasing power would also be negatively impacted by a slowdown in the labor market, which would begin at the end of this year.
Precisely, the labor market will be strongly affected by these recessive effects of the Barnier budgets. The think tank predicts 163,000 jobs will be lost. For its part, the reform of reductions in company contributions, which will involve 5 billion euros in savings, would lead to the elimination of around 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 will have difficulty presenting these budgets, but the objective is for them to be approved by the National Assembly at the end of the year.
