Banque de France cuts 2025 growth forecast to 0.7%

Investing.com -- Wednesday marked a revision in France’s economic outlook as Banque de France adjusted its growth forecast for the nation’s GDP from the previously expected 0.9% to a more modest 0.7% for the year 2025. This change is attributed to the recent downturn in economic activity and revised short-term forecasts based on the latest business surveys.

The Central Bank’s interim projections, which incorporate the 2025 budget assumptions enacted on February 14, consider the impact of increased US tariffs on Chinese imports and China’s countermeasures. However, potential tariffs on Mexican, Canadian, and European goods, as well as proposed increases in European military spending, have not been directly accounted for in these projections.

Despite the slowdown, the French economy is anticipated to avoid a recession, with growth expected to pick up in the second half of 2025. The forecast for 2026 and 2027 indicates a rise in GDP growth to 1.2% and 1.3%, respectively, which aligns with the medium-term potential rate.

Inflation is also projected to decline, with headline inflation falling to an average of 1.3% in 2025, influenced by a reduction in services and electricity prices. Inflation rates for 2026 and 2027 are expected to remain moderate at 1.6% and 1.9%, respectively. Notably, inflation excluding energy and food is forecasted to stabilize at 1.8% over the next three years.

The forecast for nominal wages suggests a continued rise faster than prices, with average wages expected to increase by 2.4% in 2025. This revision is slightly lower than previous projections but is balanced by the anticipated drop in inflation, maintaining real wage growth.

Employment forecasts for 2025 have seen minimal adjustments since December, with public sector employment expected to compensate for any decline in private sector jobs. The unemployment rate is predicted to peak at 7.8% in 2025 and 2026, before decreasing to 7.4% in 2027.

Overall, the French economy is poised for a gradual recovery, with private consumption driving growth in 2025 and business investment contributing from 2026 onwards. Despite the downward revision for 2025, the long-term outlook remains cautiously optimistic, with growth expected to rebound in the following years.

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