In Q3, the growth seen in the Eurozone was deceptive (+0.4% after +0.2%). While the strength of the Spanish economy continued unabated, activity remained at a standstill in Italy and Germany, but accelerated in France, due solely to the Olympic and Paralympic Games. Across the continent of Europe, the recovery that had been taking shape since the beginning of 2024 is already running out of steam and convalescence is ongoing: investments are weighed down by restrictive credit conditions while consumers, although benefitting from major gains in purchasing power as a result of disinflation, are still hesitant to consume and continue to boost their savings. As for European exporters, they continue to suffer from high energy prices and are also facing uncompromising competition from China: penalised by sluggish domestic demand, Chinese industrialists are cutting their prices and constantly gaining market share. The contrast is striking between the despondency in the Old Continent and the rude health of the American economy, where growth continues at a high rate (+0.7% in the summer after +0.7% in the spring): in addition to more vigorous demographics, consumers there are saving little and investments are buoyant.

In France, since this summer, the political factor has had to be considered in addition to the common European determinants. Responses collected from companies up until November and before the no-confidence motion against the Government painted a gloomy picture: the business climate fell drastically in the summer, once it was known that the Assembly had been dissolved, and has remained below its long-term average since then. However, a few sectors are coping well: aeronautics and related electronics and repair sectors are taking advantage of a favourable competitive position but are still struggling, mainly with supply difficulties; accommodation and catering are enjoying a fairly steady flow of customers. On the demand side, 2024 remains an unusual year: while French growth has held up well (+1.1%, the same as in 2023), this is due to the strong expansion of its public spending and a record contribution from foreign trade, linked to the decline in imports. Conversely, investment looks set to decline over the year as a whole (-1.6% in 2024 after +0.7% in 2023) and consumption is not expected to pick up (+0.9% after +0.9%), even though households have seen significant gains in purchasing power (+2.1% after +0.9%). By mid-2025, the two drivers of 2024 are expected to fade: foreign trade is likely to go back to normal, and a return to exactly the same budget as last year is likely to curb public spending. Private demand could take over to a limited extent. Investment could certainly benefit from the initial effects of monetary easing but is expected to continue to be constrained by uncertainty, with the result that ultimately only consumers will be driving French growth a little. They are expected to take advantage of past gains in purchasing power and a further drop in inflation which, having fallen to +1.3% year on year in November, looks set to drop further to +1.0% in June 2025. Faced with sluggish demand, companies are expected to limit their price increases and core inflation should stabilise at around +1.5%. Furthermore, in the absence of any new measures, tobacco prices are not expected to increase further and electricity prices should fall back in February. All in all, activity is likely to come to a standstill in Q4 2024 (0.0%) as a reaction to the Olympic and Paralympic Games, then grow slightly in H1 (+0.2% per quarter). The 2025 mid-year growth overhang is expected to be modest, at +0.5%.

In the labour market, payroll employment saw an unexpected upturn this summer (+0.2%), due in particular to its public component. In the private sector, it is slowing down sharply: over one year, the increase is +0.2%, against +0.5% at the end of 2023 and +1.5% at the end of 2022. By mid-2025, the private sector is expected to start cutting payroll jobs, especially apprentices, and employment is likely to slow sharply in the public sector: all in all, the French economy is likely to create 40,000 jobs over three quarters, mainly non-salaried. This is unlikely to be sufficient to keep pace with the increase in the labour force, mainly the result of the ramping-up of the pension reform, and thus the unemployment rate is expected to continue its slow rise, reaching 7.6% by mid-2025.

There are several uncertainties surrounding this forecast. First and foremost, the political situation and its budgetary consequences remain a source of unknowns. In this Economic Outlook it is assumed that in 2025 on the revenue side taxes will be renewed according to the scales currently in force, and on the expenditure side, services voted in 2024 will be renewed. However, budgetary policy could take a more restrictive turn once political uncertainty has been lifted, further slowing domestic demand. In addition, the reaction of economic agents to this unprecedented uncertainty remains very unpredictable: an additional wait-and-see period cannot be ruled out. Conversely, a rapid restoration of confidence could free up behaviour, especially as the household savings ratio is high. On the international scene, the consequences of the election of the new American president remain unclear: in particular, the rapid implementation of customs measures could slow down world trade but, conversely, increased budgetary expansion could stimulate it.