2024 ended as it had begun. Activity in the United States remained solid (+0.6% in Q4) bringing annual growth to +2.8%, whereas in the Eurozone it remained mediocre (+0.2%), confirming the lack of any real recovery in 2024 (+0.8% overall in 2024, after +0.5% in 2023). Yet world trade rebounded strongly in 2024 and the purchasing power of European households accelerated sharply with disinflation. Nevertheless, exporters from the Old Continent continued to lose market share, mired in prohibitive energy costs and facing increased competition from China, while European households preferred to save their extra income, stifling any hopes of a rapid recovery through consumption.

Since the beginning of 2025, the new direction taken by the United States administration, geopolitical changes and the resulting prospects of a trade war have further jeopardised the possibility of a European recovery in the short term. In the United States, the unpredictability of economic policy has shaken confidence: consumers fear a resurgence of inflation and growth is expected to waver in H1 (+0.4% in Q1 then +0.3% in Q2). The introduction of customs duties by the new US administration, or even the mere threat of them, is likely to put a brake on world trade and hit European economies that are dependent on American demand, especially Germany and Italy. The geopolitical turnaround and the announced resurgence of Europeans in defence matters have also resulted in a rise in German sovereign yields, and therefore in yields across the entire continent. This tightening of bond yields runs counter to the European Central Bank’s ongoing monetary easing, which had not yet been fully transmitted to the real economy. The only positive outcome for European households and companies is that the price of oil has fallen, dropping to $70 and thus providing them with some breathing space. Given this situation, the Eurozone looks set to remain mired in weak growth until June 2025 (+0.2% in Q1 then +0.1% in Q2) with some strong divergences in economies, especially between the boom in Spain and stagnation in Germany.

In France, activity came to a standstill at the end of the year (-0.1%), as an after-effect of the Paris Olympic and Paralympic Games which bolstered activity during the summer (+0.4%). Across the year as a whole, growth held up fairly well, at +1.1%, as in 2023. The French economy benefitted from a more favourable sector positioning than its European neighbours and, in addition, the turnaround in investment was offset by the acceleration of government spending. However, this supporting factor is expected to reverse in 2025: unlike its neighbours, which have for the most part made a start on their fiscal consolidation, France aims to make a substantial effort to reduce government deficit this year. Households are likely to be spared for the most part and they should also benefit from inflation dropping to +0.8% in February and remaining low until June (+1.1%), while their income (wages and, especially, pensions) is indexed to past price increases. Purchasing power should thus continue to grow, already gaining +0.9% by mid-year, after +2.5% in 2024. Consumption would then follow suit, despite savings intentions remaining at a high level. Conversely, businesses are more affected by budgetary recovery measures, which represent a 0.9 point reduction in their value added, and their financial situation is still penalised by the earlier rise in borrowing rates. Indeed, in an uncertain international context, few companies interviewed for the business tendency surveys were considering increasing their investments. Finally, the special law that remained in force for six weeks at the beginning of the year before the adoption of the 2025 budget reduced government spending to a minimum during this period: the slowdown in government consumption is likely to affect activity in Q1.

Ultimately, the French economy is expected to go slow in H1 (+0.1% in Q1 then +0.2% in Q2) with the growth overhang for 2025 likely to be only +0.4% by mid-year. This pace is consistent with the business survey responses: the business climate stood at 96 in February, below its long-term average. The situation is clearly gloomy in energy-intensive industries (for example in chemical industries and metallurgy).

On the labour market, salaried employment declined sharply at the end of the year, with the French economy shedding 90,000 jobs in the last three months of 2024. In business tendency surveys, the optimism that had prevailed since the health crisis has now fizzled out: the employment climate is below its long-term average and deteriorated in February 2025, hitting its lowest level in ten years (excluding the health crisis). Companies are expected to continue to reduce their workforce, by 50,000 salaried positions in H1, which will be partly offset by the creation of non-wage jobs. Combined with an increase in the labour force driven by the ramping up of pension reform, this decline in employment is expected to push the unemployment rate up to 7.6% by mid-2025.

Several uncertainties surround this forecast. First and foremost, the international situation remains very fluid. This Economic Outlook assumes that starting this spring the United States will raise customs duties for most of its major trading partners, which would slow world trade. However, the US administration’s vacillations on this issue represent significant uncertainty, with both upside and downside risks. In addition, any potential retaliatory measures could push inflation beyond expected levels. Meanwhile, oil prices and long-term interest rates have experienced some severe fluctuations in recent weeks, in line with the evolving geopolitical situation, making the conventional stabilisation assumptions used for forecasting even more fragile than usual. In France, while the domestic political situation has stabilised for the time being, the reaction of private agents to fiscal consolidation is difficult to assess. Households’ savings ratio represents an obvious reservoir for growth if confidence were to be restored, but conversely, the deterioration in the labour market could encourage them to further increase their precautionary savings.