The Finance Law for 2025, published in the Journal Officiel on 14 February 2025, provides for a structural fiscal adjustment of around +0.7 GDP points in order to reduce the public deficit to 5.4% of GDP, after 5.5% in 2023 and 6.0% forecast by the French government for 2024. Within the Eurozone, this adjustment in 2025 is likely to be specific to France, as most of the other major European countries have already reduced their deficits in recent years.

This effort, provided for in the Initial Finance Law (LFI) and the Social Security Financing Act (LFSS), is intended to improve the balance of public accounts, reduce public debt and meet France’s European commitments. In addition, maintaining a high public deficit could lead to a further rise in the cost of sovereign debt, which could also hamper activity.

It is based on various mechanisms, which affect the prices paid by economic agents, household purchasing power, the financial situation of enterprises and public consumption and investment expenditure. As a result, the measures considered here are expected to reduce household purchasing power by 0.4 points over 2025 as a whole, although they would not prevent it from increasing due to other factors, and the financial situation of enterprises is likely to be affected to the tune of 0.9 points of their value added. However, their margin rates should remain relatively close to their pre-health-crisis levels.

The effects on growth are expected to spread slowly and be attenuated. For households, the high savings ratio should cushion the impact on consumption, especially as some measures are targeted at high-income households. For enterprises, certain measures are announced as temporary and are therefore less likely to slow investment, if they consider this announcement credible. Finally, regarding government consumption and investment, the special law remained in force in the first few weeks of 2025 before the Finance Law was passed, depressing central government spending and demand in Q1...