France economic stagnation and negative growth outlook, Digi Mart USA News: France’s economy is facing mounting pressure, with growth stalling, inflation rising again and businesses growing more pessimistic. Budget constraints and political uncertainty have raised the risk of a vicious economic cycle, according to the source report.
The respite offered by Moody’s proved short-lived. The agency surprisingly chose not to downgrade France’s sovereign rating on October 23.
A week later, Fitch lowered the French outlook from “stable” to “negative,” a decision made outside the official calendar and justified by the deterioration of several economic indicators since its last review in August.
The downgrade adds to a long series of weak statistics that could further complicate the government’s task. Last week, the national statistics institute Insee reported that French GDP fell 0.1 percent in the third quarter, after zero growth in the second quarter and a 0.2 percent decline in the first.
“At this stage, we cannot speak of a recession. It is rather stagnation,” said Olivier Garnier, associate expert at the Institut Montaigne and former chief economist at the Banque de France.
Still, it is an anomaly within the European Union. France is the only member state, along with Lithuania, to record negative growth over the past three months.
Inflation accelerated again in October to 3.4 percent, driven by soaring fuel prices. “We are going through a very significant purchasing power crisis, and it is hard to see how to get out of it in the short term,” said Eric Dor, director of economic studies at IESEG School of Management.
Borrowing costs add further pressure. “Real austerity will come if they continue to rise,” anticipated economist Sylvain Bersinger.
“We will then end up being forced to adopt severe measures.”
The consequences are already taking shape. Public Accounts Minister David Amiel warned the National Assembly that “more efforts” will be needed in the 2027 budget to address the new decline in activity.
This carries the risk of falling into a vicious spiral. “Additional savings at the wrong moment could worsen the situation,” warned François Ecalle, founder of the Fipeco website.
In its initial budget proposal, the government planned a substantial 44 billion euros in savings. Since then, Bercy has revised its growth forecast to 0.5 percent, down from 0.7 percent.
That gap alone “would in principle widen the deficit by 0.1 point of GDP, or about 3 billion euros. In reality, depending on the origin of the slowdown, it could be only 1 billion, or as much as 6 billion,” Ecalle explained.
Even a 0.5 percent growth rate appears less and less credible. Meanwhile, Garnier noted that “committing to a credible path of reducing the public deficit can, in a way, offset the more or less restrictive effect of budget savings,” by reassuring creditors and other economic actors.
Ways out of the crisis nonetheless appear narrow. “There will be no notable change before the presidential election,” Bersinger predicted.
“Without a majority, and six months before the election, the government cannot launch major reforms. We risk being stuck in inaction until May, or even June if legislative elections follow, which is likely.
Everything will then depend on the outcome and the programs chosen.”
He said “the main hope, although it still seems distant, rests on a breakthrough in the Middle East and a return of oil and gas prices to more normal levels. If the conflict stopped, prices would become affordable again within a few weeks, creating a positive mechanical effect: less inflation and therefore somewhat more purchasing power.
The problem is that this outcome is not yet visible.” Social unrest in France adds to the strain. “It makes businesses even more pessimistic,” Dor noted.
“Tourism, one of France’s strong points in service exports, is also suffering: ask industry professionals, and bookings are weak. That is logical, since images of social unrest broadcast repeatedly on foreign channels amount to very bad publicity.
It is a very difficult period to get through.”
Business leaders see no end in sight. In its latest study conducted with Ifop, published Tuesday, November 3, debt collection firm Arc found that 92 percent of the 500 companies with 50 or more employees surveyed are convinced the French economic situation will deteriorate over the next six months.
“What matters most are demand prospects: one invests because one believes there will be a market for new products. Slower growth, combined with uncertainty about the future political regime and the tax burden businesses will face, rationally leads investors to postpone their projects.
Less growth, therefore less investment, therefore even less growth,” Dor described. It is a vicious cycle from which France’s way out is hard to see.
