In recent weeks, the French National Institute of Statistics and Economic Studies (INSEE) released a series of economic data for the third quarter, revealing a complex picture of the nation’s economic healthWhile the economy appeared to have briefly entered a recovery phase, external turbulence and internal political instability cast a shadow over the growthThe indicators for the second half of the year suggest that France may once again face the specter of economic stagnation, plagued by deep-rooted issues such as debt, consumption, employment, and productivity.

The data from INSEE indicated a modest quarter-on-quarter growth of just 0.4% for the economy, even with the Paris 2024 Olympics adding 0.3 percentage points to this figureIn a troubling trend, analysts predict that the economic growth rate could dip to -0.1% in the fourth quarter due to persistently low consumer and investment activity

Projections for 2024 indicate a modest annual growth of only 1.1%, which is unchanged from the previous yearInterestingly, while domestic consumption faltered, foreign trade showed more robust performance in several sectors such as aviation and shipbuildingPublic spending—especially from local governments—has emerged as the sole driving force for domestic demand.

Officials from INSEE expressed concerns about the sustainability of this growthFollowing a brief recovery in 2023, business investments have begun to dwindleThis downturn is attributed to shifts in the political landscape in France, which has left the business community in a cautious state of hesitationSpeculation surrounding credit costs, weak demand in the eurozone, and increasing domestic political uncertainty has caused many companies to adopt a wait-and-see approachAs the year draws to a close, this environment is expected to hinder commercial investments further.

Complementing INSEE's findings, the Bank of France has published its macroeconomic forecasts which align closely with INSEE's data

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The bank anticipates a slight rebound in economic growth to 1.2% in 2025 and 1.5% in 2026, driven by a decline in inflation rates and a subsequent recovery in household purchasing powerPositive factors such as real wage increases are expected to rejuvenate consumption, allowing it to outpace foreign trade as the primary driver of economic growthFollowing a peak inflation rate of 5.7% in 2023, the Bank of France forecasts a drop to approximately 2.5% in 2024, maintaining a level between 1.5% and 1.7% from 2025 to 2026, which is consistent with the European Central Bank's targeted range.

Nevertheless, Bank of France Governor François Villeroy de Galhau has cautioned that clear signs of sustained recovery are yet to materializeBoth households and businesses are exhibiting a noteworthy sense of wait-and-see, closely tied to the current political climate and international uncertainties

Moreover, Villeroy emphasized the risks posed by France's persisting high deficit rates, stating, “It is essential to bring the public deficit below 3% of GDP as soon as possibleWhile the government aims to achieve this within three years, such goals seem unrealistic and threaten economic growth.”

With the economy's recovery hitting another patch of turbulence, French economists are urging the government to focus on three pivotal keywords: sustainable public finance, stability of expectations, and competitive manufacturing, as a means to reinvigorate France's economic vitality and break free from the “recovery-stagnation-stalemate” cycle.

In terms of public finances, recent budget documents submitted by the French Ministry of Economy and Finance reveal a grim outlookAs local government expenditures soar and national revenues fall short of expectations, the public deficit is projected to climb to 5.6% of GDP in 2024 and potentially surge to 6.2% in 2025. This situation has prompted the European Union to initiate an “excessive deficit” investigation, compelling France to submit a fiscal adjustment plan by September 20, with the goal of maintaining the public deficit within 3% of GDP by 2027. In response, the French government has requested a delay in submitting this plan, arguing for alignment with its 2025 budget proposals

Recently resigned Minister of Economy Bruno Le Maire has stressed the importance of recognizing the deteriorating fiscal landscape, declaring, “The only sensible choice is to reduce expenditures; any other measures will inevitably plunge France into financial distress.” Furthermore, he identified three fiscal priorities for the future: increasing wages and productivity, addressing climate change, and promoting private financial market involvement in economic development.

Regarding the stability of expectations, the urgency to rebuild internal policy stability, rather than solely engaging with uncertain external conditions, emerges as a more prudent course of actionRecent public opinion polls conducted by French media and the Montaigne Institute indicate a rising level of anxiety among citizens concerning significant divisions among political parties regarding fiscal issues

Approximately 80% of the populace believes that resolving the debt crisis is an immediate necessityGiven that monetary easing measures are forecasted to yield limited effects by the year’s end—despite initiating wage increases, bolstered social welfare, and alleviated inflation—public sentiment towards consumption and investment remains cautiousThe high savings rates maintained by households further weaken the role of consumption in driving economic growth.

The appointment of a new Prime Minister has been mired in continual deadlock, leading to relentless negotiations surrounding budget cuts at national and local levels, increased taxation on the wealthy and major corporations, and the promotion of ecological transition initiatives aimed at deficit reduction and boosting developmentThis persistent uncertainty feeds market skepticism and heightens public apprehension towards government policies, forming a formidable impediment to sustained economic stability.

When it comes to competitiveness in production, French industry faces a myriad of challenges such as diminishing overseas demand, reduced new orders, and overcapacity in several sectors

The vigor and competitiveness of French industrial production are continuously stifledRecent assessments of the performance of French companies featured on the Fortune Global 500 list show a steady decline, with most enterprises concentrated in sectors such as finance, insurance, consumer entertainment, and retail, while traditional industries like heavy industry, electrical engineering, and nuclear power have seen diminished representationInvestigations reveal that more than two-thirds of respondents feel inflation hampers their capacity and willingness to purchase “made in France” productsIn fact, over the past 50 years, the share of French-made goods in domestic consumption has dropped by 11 percentage points, falling from 82% to a mere 38% for manufactured productsConsequently, French households are increasingly opting for affordable imports as they remain vigilant about spending.

Experts suggest that this phenomenon is linked not only to declining domestic demand and purchasing power but is also compounded by rising production costs, elevated employee expenses, diminishing profit margins, and a lack of strong inclination for innovation and transformation among enterprises

The cumulative effects of these factors continue to inhibit France’s competitiveness on the global stageSome analysts propose that, rather than relying solely on protectionist trade policies—a tactic that could potentially escalate costs and reduce efficacy—France should focus on reshaping its tax environment, optimizing human resources, and prioritizing technological innovation as means to enhance productivity.

Ultimately, as France grapples with its slowing recovery, the commitment to stability in policy, the revitalization of expectations, and a fortified internal foundation appear critical in navigating structural obstaclesStriking a meaningful equilibrium between deficit reduction and economic stimulation, production advancement and social welfare, transformation and development, as well as reform and stability remains a significant challenge that merits the country’s attention.