Goldman Sachs revised its growth forecast for the French economy in 2025 to 0.6%, a slight reduction from previous expectations and just below the consensus. The investment firm cited a likely stagnation in the last quarter of 2024, influenced by a post-Olympics economic dip.
This adjustment reflects a more cautious stance on private consumption, as the rate of wage increases has slowed and unemployment is trending upwards. Goldman Sachs also indicated that risks to its forecast are tilted to the downside, with potential policy uncertainty and labor market challenges as contributing factors.
The firm also anticipates a decrease in France's budget deficit to 5.7% in 2025, down from 6.1% in the previous year. This projection hinges on the government's ability to pass a budget and is somewhat higher than the newly set target range of 5-5.5%.
The Bayrou government is expected to face challenges, including the need for concessions to opposition parties, potentially overly optimistic growth and inflation assumptions, and risks of budget execution slippage.
Goldman Sachs outlined the near-term risk of the French Parliament rejecting the new budget proposal, which could lead to the government's resignation and the budget deficit stagnating around 6%. This scenario underscores the fragile balance of political and fiscal management facing France.
Furthermore, France is set to attract increased attention with Fitch (rated AA- with a negative outlook) scheduled to report on March 14, and the European Commission due to assess compliance with the bloc’s fiscal rules by late April.
The political landscape in France remains uncertain, with the possibility of parliamentary elections starting from July.
However, recent polls suggest no significant shift in voting intentions, implying a continued deadlock in Parliament and a limited likelihood of major political change until the next presidential election, which must occur by 2027.
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