Why The 2025 Budget Could Lead To An Economic Crash In France?

The OFCE sounds the alarm: the restrictive budget planned for 2025 could seriously dampen the growth of the French economy and household purchasing power. These bleak prospects, linked to budgetary choices, could affect financial markets, already under pressure.

A sudden brake on economic growth

According to the latest forecasts from the French Economic Observatory (OFCE), the growth of the French GDP is expected to fall to 0.8% in 2025, compared to 1.1% anticipated in 2024. This downward revision is mainly due to the negative impact of the restrictive budgetary policy envisaged by the government.

“The budget squeeze could cut growth by 0.8 percentage points in 2025“, warns Mathieu Plane, economist at the OFCE. The cuts in public spending and the increase in tax pressure will heavily weigh on economic activity. Despite these efforts, the public deficit would remain high at 5.3% of GDP.

Additionally, the climate of political uncertainty following the dissolution of the National Assembly should also hinder private investment. The OFCE estimates that this “uncertainty shock” could cost an additional 0.2 points of growth.

Purchasing power and consumption under pressure

French households will not be spared by this economic slowdown. The OFCE anticipates a 0.2% decline in purchasing power in 2025, after a slight increase in 2024. This erosion of living standards is expected to weigh on consumption, the main driver of French growth.

Indeed, inflation is expected to continue to slow down (1.5% predicted in 2025), but not enough to offset wage moderation and rising unemployment. The unemployment rate could rise to 8% in 2025, compared to 7.5% expected at the end of 2024.

In light of these mixed prospects, stock market investors might adopt a cautious attitude. Cyclical and consumer stocks are likely to be particularly affected by this gloomy context. On the other hand, defensive stocks and yield values may manage to stand out.