Economic situation: the French economy is “running out of steam,” notes INSEE

A stalled economy: French growth is expected to slow significantly in 2025, with its main drivers, such as consumption and investment, lacking momentum amid budgetary restrictions and global economic uncertainty, INSEE reported on Wednesday, June 18.

After 1.1% in 2024, the National Institute of Statistics predicts an increase of only 0.6% in gross domestic product (GDP) in the eurozone's second-largest economy for this year. This rate is lower than the government's forecast (0.7%), which the government has deemed "achievable" despite heightened international tensions and a considerable budgetary effort that will continue in 2026.

"Slowly, the Eurozone is emerging from its torpor, despite the turnaround in global trade," with a revival of investment in particular, but "the French economy does not seem to be evolving in step with the continent," INSEE underlines in its economic report.

"While in 2023 and 2024, French activity had held up rather better (...) than in other European countries, the French engines are now running out of steam," assures the INSEE. In detail, after 0.1% in the first quarter , the public body forecasts a rise of 0.2% in GDP in each of the following three quarters.

He warned, however, that his forecast was subject to significant uncertainties, such as Washington's fickleness on tariffs , the impact of the Iran-Israel conflict on oil prices, the pace of Germany's recovery and future budget cuts in France.

A traditional pillar of French growth, household consumption is expected to increase only moderately (0.7% after 1.0% in 2024), at the same rate as purchasing power (after 2.5%), despite softening inflation, expected to be around 1% at the end of the year.

After 18.8% in the first quarter, a 45-year peak (excluding the health crisis), the household savings rate would decrease slightly to 18.2% on average over the year (and even to 17.3% at the end of the year), remaining however at a high level, a sign of the prevailing wait-and-see attitude.

Among the explanations, the INSEE puts forward a lower extent of the indexation on inflation of social benefits, a erosion of income from assets due to the fall in interest rates and an increase in the balance of income tax to be paid , salaries having increased more last year than the tax scales revalued according to inflation.

According to the institute, which analyzed anonymized banking data from 180,000 La Banque Postale customers, two-thirds of the increase in the savings rate in 2024 would come from retirees , whose significant 5.3% increase in pensions in 2024 did not translate into more consumption.

Overall, the contribution to growth in domestic demand, which also includes a slowdown in government consumption, would reach 0.5% in 2025, compared to 0.6% last year.

Regarding investments, these are expected to continue to deteriorate, but less sharply (-0.5% after –1.3%), notably among businesses (-0.8%) and households (-0.6%), with the construction of new housing showing signs of recovery. Investments by public administrations are expected to fall into negative territory (-0.6%).

Companies would also see their situation deteriorate, suffering from higher interest rates on their new loans and, for the largest of them, from a surcharge planned in the 2025 budget.

Further clouding the picture, the support of foreign trade for growth observed in 2023 and 2024 would fade, even reducing growth by 0.7 percentage points. Exports would remain sluggish in the face of rising imports, with French manufacturers losing market share.

The INSEE estimates the impact of the US customs tariffs on France at 0.1 points of GDP in 2025, both due to the direct commercial impact and the uncertainty and financial tensions it generates, and at 0.4 to 0.6 points in 2026 depending on whether or not there are response measures.

The unemployment rate is expected to rise to 7.7% by the end of 2025, up from 7.4% currently. According to INSEE, France's weak growth in 2025 would result in a 1.3% decline in greenhouse gas emissions.