The arrival of the new US administration has turned the world economy upside down since the beginning of 2025. Anticipating a massive increase in customs duties, manufacturers the world over rushed to ship goods. World trade surged by 1.7%, driven by an impressive rise in imports from the United States (+9.3%), which led to a contraction in the US economy in accounting terms (-0.1%). Conversely, Europe saw a revival in activity, particularly in the UK (+0.7%), Germany (+0.4%) and Italy (+0.3%), as did China, where 50% of growth is now reliant on foreign trade. The US announcements have also amplified divergences in monetary policy: on the one hand, fears of a resurgence in inflation have prompted the Fed to put its easing on hold, while on the other, the ECB has cut rates seven times over the last nine months, with the drop in oil prices and the appreciation of the euro limiting price rises in the zone.

The upturn in world trade is clearly not expected to last. Despite the pause in the “reciprocal tariffs” announced on 2 April, and even if it remains difficult to predict future decisions, US customs duties have already risen since 1^st April, to a level not seen since the Second World War. Preliminary data has confirmed a collapse in US imports in the spring: world trade is expected to edge down in Q2 (-0.7%) and then to continue to be held back in the second half of the year (+0.4% per quarter). US domestic demand is also likely to begin to slow: consumer confidence is faltering, public spending is stalling and the outlook for businesses surveyed in the business tendency surveys is gloomier. Overall, the US economy is set to slow in 2025 (+1.8% after +2.8% in 2024). The downturn in sales is likely to harm activity in the countries that are the largest exporters to the United States, starting with China, where growth is expected to fall below 5% by 2025.

The Eurozone is slowly emerging from its torpor, despite the upheaval in world trade. The internal momentum is building, slowly but surely. Throughout the zone, and especially in Germany, manufacturers are slightly less pessimistic about their business prospects and investment is picking up, benefiting from interest rate cuts. In the construction sector, European funding under the stimulus plan launched in 2021 continues to nurture Italian and Spanish construction projects. In addition, households are consuming some of the purchasing power gains obtained due to the decline in inflation. After being boosted in 2024 by the indexing of certain incomes against past inflation, purchasing power is likely to slow down significantly in 2025, but households are expected to reduce their savings ratio slightly. All in all, activity in the Eurozone should come to a standstill in Q2 (+0.1% after +0.6%) due to a backlash effect, and then progress slightly in H2 (+0.2% per quarter). Over the year as a whole, activity looks set to accelerate (+1.3% after +0.8%). Disparities between countries remain substantial, but are narrowing: year on year at the end of the year, German growth (+0.7%) is likely to exceed that of Italy (+0.5%), while remaining well below that of Spain (+2.1%). The revival of European investment is rekindling intra-regional trade: despite US policy, world demand for French goods is set to accelerate sharply in 2025 (+2.7% after +1.5% in 2024), outpacing growth in world trade.

The French economy does not appear to be in tune with the rest of the continent. In Q1, it failed to benefit from the surge in trade: activity barely grew (+0.1%) and exports, which are dependent on the ups and downs of the aeronautical and shipbuilding sectors, plummeted (-1.8%). While French activity had held up somewhat better than in the other European countries in 2023 and 2024 (+1.6% and +1.1% respectively), the economic drivers in France are now running out of steam: public spending is slowing and exports are disappointing despite the return of demand for French goods. Investment is picking up less strongly than elsewhere in Europe. Burdened by their debt, French companies have suffered from the rise in financing costs between 2022 and 2024, which has reduced their room for manoeuvre. On the consumption side, although their purchasing power has held up better than elsewhere, French households are spending sparingly: health crisis aside, their savings rate reached a 45-year high in Q1. Business activity is likely to remain weakish until the end of the year, but without stalling (+0.2% per quarter). The majority of companies questioned in business tendency surveys still consider their order books to be below normal, and the business climate remains significantly below its long-term average. Unlike its neighbours, France has only just begun to consolidate its budget in 2025, which is hampering economic activity. Over the year as a whole, growth is expected to reach +0.6%, a marked slowdown compared with 2024 (+1.1%), somewhat in contrast to the European trend.

French households should continue to benefit from persistently lower inflation than in the rest of Europe: down to +0.7% in May, it is expected to stand at around +1% by the end of the year. France stands out for its belated transmission of the drop in electricity prices compared with other countries, and for strong price-driven competition in the telecommunications sector. This low inflation is unlikely to prevent a sharp slowdown in purchasing power (+0.7% after +2.5% in 2024). In 2024, the purchasing power of French households improved, boosted by indexing against past inflation, notably for pensions, but consumption failed to keep pace (+1.0%) and the savings ratio rose again. There are several reasons for this wait-and-see attitude. In addition to uncertainties about economic policy, perceived inflation is still high, the automobile market is in transition, and the share of income from wealth in total income has risen sharply as a result of rate rises. Another phenomenon occurred in 2024, with benefits rising twice as fast as earned income without pensioners' consumption reacting to the strong boost to their income. The effect of the massive pension increase at the beginning of 2024 (around 5%) on activity would therefore appear to have been cancelled out.

However, the household savings ratio appears to have peaked at the start of 2025, and is expected to start falling by the end of the year. Households smooth out fluctuations in their income, which should decline in H2, as the balance of income tax is expected to rebound sharply, and with income from wealth likely to be eroded by the reduction in interest rates. On average over the year, consumption is only expected to keep pace with purchasing power (+0.7%) and the savings ratio should remain stable, whereas it is expected to fall elsewhere in Europe.

For enterprises, the signals are mixed: capital goods purchases seem to have bottomed out, but the resilience of spending on services, particularly IT services, is expected to weaken significantly. In 2025, corporate margins are expected to deteriorate in the energy and transport services sectors, due to the decline in electricity and sea freight prices, but should remain stable for the rest of the business sector thanks to the drop in oil prices. Despite these sound operating results, the financial situation of French enterprises is likely to keep deteriorating in 2025. They are suffering from higher interest rates on new loans than on those expiring, and the largest enterprises will also be hit at the end of the year by the exceptional tax levy introduced by the Finance Law for 2025.

After two years of sharp decline, the construction of new homes seems to have bottomed out and there are increasing signs of recovery: the numbers of housing starts and building permits are increasing and developers are considering new projects. Conversely, the maintenance-improvement component, which was keeping activity afloat, seems to have been weakened, especially since the suspension of the main public support scheme for renovation (MaPrimeRenov'). Real estate transactions in existing properties have picked up sharply over the last two quarters, encouraged by the drop in interest rates and temporarily boosted by anticipation of the increase in property transfer duties decided in the Finance Law for 2025 and implemented from spring onwards. By the end of the year, however, they are likely to fall sharply, especially as far fewer households say they are considering buying a home in the business tendency surveys. All in all, household investment is expected to edge down again in 2025 (-0.6%), though less sharply than in 2024 (-5.6%) and 2023 (-7.7%).

France's greatest disappointment for the year as a whole is likely to concern foreign trade. The vagaries of the weather are likely to lead to a decline in the balance of trade in electricity and agricultural products in 2025, as these two segments made a significant contribution to France's performance last year. Similarly, trade in services is expected to suffer as an after-effect of the Paris Olympic and Paralympic Games. Exports of manufactured goods, excluding the aerospace and shipbuilding sectors, should remain flat (-0.2% after +0.3% in 2024), reflecting further losses in market share by French manufacturers. Expected deliveries of aircraft and ships, heavily concentrated in the last three quarters, will partly offset this decline, but over 2025 as a whole, foreign trade is expected to reduce growth by 0.7 points, whereas it had made a positive contribution over the previous two years. Meanwhile, enterprises are rebuilding their inventories for the time being, which will safeguard growth (contribution of +0.8 points after -0.8 points in 2024 and -0.3 points in 2023).

On the labour market, payroll employment declined sharply over the last two quarters, with the French economy shedding more than 120,000 payroll jobs. In the business tendency surveys, the prevailing optimism since the health crisis has finally disappeared: the employment climate has been below its long-term average since the summer of 2024, and has deteriorated again since the start of 2025, as enterprises regain their productivity. At the same time, employment-policy-related subsidies are being reduced, both for apprenticeship-support schemes and subsidised employment allocations. As a result, payroll employment looks set to decline by an additional 90,000 jobs between now and the end of the year, with two thirds of these jobs being held by employees on work-study schemes. In all, around 210,000 payroll jobs are expected to be lost over five quarters. Combined with the increase in the working population caused by the introduction of pension reform, this decline in employment should push the unemployment rate up to 7.7% by the end of 2025.

This forecast is subject to a number of uncertainties. First and foremost, the international situation remains highly uncertain. This Economic Outlook assumes that US customs duties will broadly stabilise at their current level over the forecasting period, but the numerous shifts in the US administration's position on this subject since early April constitute a major uncertainty with both upside and downside risks. In addition, the price of oil surged on 13 June due to the tensions in the Middle East: conventionally, this Economic Outlook, finalised a few days before this date, assumed a constant price of around $65. If it were to stabilise at around $10 higher, inflation would rise (by around 0.1 points at the end of the year), margins would be lower and this would further slow down activity. In Europe, the pace of Germany's recovery is a factor of uncertainty. Despite being surprisingly strong in the past, the structural factors of sluggishness (Chinese competition and energy costs, in particular) call for caution. In France, the budget consolidation trajectory for the coming years remains unknown, leaving private players in a potentially uncomfortable position. In particular, the announcements expected at the beginning of July could change the behaviour of agents, leading to renewed confidence or, conversely, to greater sluggishness.