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France gets stuck in dire straits

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France's economy is in turmoil again! It has been trapped in a deep crisis since last year, appealing for urgent measures.

According to the latest data, the French economy contracted at the end of 2024 as the boost from the Paris Olympics faded. Besides, the government crisis further dented business and consumer confidence.

France’s GDP inched down by 0.1% in Q4 2024, reversing after a 0.3% increase in the previous July–September quarter. Meanwhile, analysts surveyed by Bloomberg had predicted economic stagnation.

Consumer activity in France has slackened off, driven by weaker private spending growth and stagnating business investments. Trade volumes and inventory changes also made a negative impact on economic performance in Q4 2024.

The disappointing report highlights the fragile state of the eurozone’s second-largest economy. Meanwhile, the ongoing budget crisis is forcing the French government to draft temporary legislation to prevent a government shutdown.

The current economic downturn in France is weighing on the entire eurozone. Investor anxiety is escalating because of looming US trade tariffs under President Donald Trump’s administration. Germany, previously considered the engine of the eurozone, has been struggling with a long-standing production capacity deficit.

The French government’s budget issues are intensifying the economic slowdown. Weak tax revenues and sluggish growth in 2024 led to a budget deficit of 6% of GDP. The negotiations over the 2025 budget are set to conclude next week, when new Prime Minister François Bayrou’s tax and spending proposals will be put to a vote.

Previously, France’s Finance Minister Éric Lombard stated that interest rate cuts and budget clarity could help revitalize the economy. However, this month, he lowered France’s GDP growth forecast for 2025 by 0.2% to 0.9%, marking a slowdown from a 1.1% increase in 2024.

Businesses need to know what the budget will look like to decide whether to invest or hire staff, Lombard emphasized. On top of that, government investment is currently below normal levels, leaving businesses in limbo. With budget uncertainty, weakening consumer spending, and external trade risks, France’s economic future remains obscure.

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