The Bank of France has lowered its economic growth forecast for 2025

The Bank of France has lowered its GDP growth forecast for 2025 to 0.9% from 1.2% previously expected. This is stated in the quarterly review of the regulator, Reuters reports.

Over the next two years, the country’s economy will grow more slowly than expected, as domestic political turmoil adds to global instability. The central bank expects government austerity measures and political uncertainty to weigh on consumer spending and private sector investment.

“If our country remains in a state of budgetary failure due to political friction, it risks falling further and further behind other European countries economically,” Bank of France Governor François Villeroy de Galleau said in an interview with Le Figaro.

The country’s economic growth is expected to rebound to 1.3% in 2026 and 2027, with consumers benefiting from wages rising faster than inflation. But this could be jeopardized if people continue to invest their disposable income in savings in the face of uncertainty.

Inflation is expected to reach 2.4% this year. The Bank of France predicts that it will remain below the ECB’s 2% target over the next three years, in particular, falling to 1.6% in 2025 and accelerating to 1.7% in 2026.

The review notes that geopolitical risks are still present, but there are also those that affect international trade. The baseline scenario chosen by the regulator does not take into account the possibility of trade tensions in the event of an increase in US customs duties, as the consequences of this are difficult to quantify.

At the end of last week, Moody’s unexpectedly downgraded France’s credit rating to Aa3 with a stable outlook, citing political fragmentation that makes it more difficult to achieve a sustainable reduction in the budget deficit.

As GMK Center reported earlier, in November, the Bank of France expected the country’s economy to stagnate in the fourth quarter of 2024 after the growth in July-September, which was stimulated by the Olympics. By the end of 2024, the regulator predicted GDP growth of 1.1%.