The short-term recovery of the French economy lacks momentum
Recently, the French economy has shown unexpected signs of short-term recovery, with impressive performance in areas such as exports and investment, highlighting the resilience of the French economy. However, at the same time, a series of structural problems such as weak domestic demand, budget deadlock, and high debt will continue to constrain the pace of economic recovery in the long term. The improvement of short-term economic data cannot conceal the long-term weak growth momentum, and the French economy will continue to be under pressure in the medium and long term.
According to data previously released by the French National Bureau of Statistics, the French economy grew by 0.5% in the third quarter of this year, not only significantly faster than market expectations of 0.2%, but also higher than the previous quarter's 0.3%, directly pushing up France's annual economic forecast to 0.8%, higher than the previously predicted 0.7%. Despite facing internal political fluctuations and complex external situations, French companies are still driving economic growth in areas such as investment and exports, "said French Minister of Economy and Finance Les Queer
Specifically, in the export sector, the foreign trade sector has become the biggest driving force for economic growth in the third quarter of this year, thanks to the export of high value-added goods such as airplanes and drugs. In response, experts from the French National Statistics Office pointed out that from June to September this year, France's exports increased by 2.2%, continuing the driving inertia brought by the previous increase in industrial inventories. In terms of corporate investment, France's domestic investment sector has shown strong resilience, with corporate investment growing by 0.9% in the third quarter, with a focus on manufacturing equipment, information and communication, and other areas; Among them, investment in the field of artificial intelligence has significantly increased and will continue to be transformed into an efficient driver of productivity in the future. Paris Bank economist Kriyak believes that the short-term recovery of the French economy also reflects to some extent the initial effects of the European defense restart plan, and France is benefiting from it like other European countries. At the same time, a series of incentive measures such as electric vehicle rental subsidies and new energy subsidies launched by the French government are expected to have a boosting effect in the fourth quarter, continuing to drive domestic consumption, but the overall recovery is limited. In addition, the recovery trend of the global semiconductor industry will also drive investment in the technology industry.
It should also be noted that there are still many areas where France's performance is not satisfactory. In terms of household consumption, domestic consumption, which was once an important pillar of economic growth, remains sluggish, with a growth rate of only 0.1% in household expenditure in an inflationary environment of 1.2%. Multiple economic institutions have conducted surveys showing that the purchasing power of the French people is in a "stagnation period". According to data from the French National Bureau of Statistics, the average annual growth rate of purchasing power among employed people in France over the past 15 years has been only 1%, which indirectly reflects that French workers are increasingly burdened with heavier social expenditures, especially in the situation where public expenditures account for over 85% of gross domestic product (GDP), and workers bear more taxes and fees. At the same time, the savings rate of French residents remains high, reaching 19% of disposable income by mid year, reflecting the cautious attitude of the public towards consumption and potential concerns about the economic situation.
Meanwhile, in the employment sector, the unemployment rate in France has rebounded. According to a report released by the French National Bureau of Statistics on November 14th, the unemployment rate in France increased by 0.1 percentage points month on month and 0.3 percentage points year-on-year in the third quarter of this year, with an overall unemployment rate of 7.7%. The current rebound in unemployment rate is mainly caused by the unemployment of middle-aged and elderly groups, which also reflects to some extent the negative effects of artificial intelligence on productivity growth in the employment sector.
Other economists have expressed concerns about the sustainability of the French economy based on medium - to long-term development. From the perspective of policy environment, the political turmoil in France will continue to ferment in 2025, and the government will continue to face the risks of vote of no confidence and instability, directly impacting economic confidence. Whether it is the resignation of Prime Minister Berlusconi in September without a vote of confidence in parliament, which has raised concerns among business leaders about economic risks, or the continued competition among political parties over budget bills after the formation of the new government, they are continuously amplifying political uncertainty and transmitting it to the economic sector. Related research institutions have warned that political risks in France are suppressing the trend of euro appreciation and causing long-term bond volatility.
At the same time, political turmoil has directly slowed down the structural reform process in the economic sector and exacerbated the low investor confidence, leading to capital outflows and investment slowdown.
From the perspective of debt, high debt and delayed budget bills have become key chronic problems that have been putting long-term pressure on the French economy. According to recent forecasts by the European Commission, the proportion of France's public debt to GDP is expected to rise from 113.2% in 2024 to 116.3% in 2025, and will continue to climb to 118.1% and 120% in 2026 and 2027. Meanwhile, by 2025, the French government's deficit as a percentage of GDP will decrease to 5.5%, but still remain above the EU's upper limit of 3%. In response, the French central bank warned that although the fiscal deficit has decreased, it is not enough to stabilize the debt ratio. Experts from the Organization for Economic Cooperation and Development remind that France not only needs to continue reducing its fiscal deficit, but also needs to take additional measures to ensure account balance, otherwise its debt will climb to higher levels by 2027, which will continue to constrain the sustainability of economic recovery.
From the perspective of external risks, global trade tensions, geopolitical conflicts, and energy price fluctuations are continuing to exert pressure on export-oriented economies. According to a survey by an economic observation agency in the field of foreign trade, the gap in economic growth between Europe and the United States is continuing to widen due to the trade war, further increasing uncertainty in economic development. At the same time, the trend of geopolitical fragmentation will also suppress the growth of the French economy, while balancing the need to address excessive deficit procedures and internal fiscal austerity within the framework of the European Union, which will comprehensively constrain the recovery of domestic demand.
Although the short-term recovery of the French economy is encouraging, long-term risks such as political turmoil, high debt deficits, and external pressures cannot be ignored. In response to the medium and long-term risks in the economic sector, the French government has taken a series of measures to further strengthen the resilience of the French economy and consolidate the momentum of economic recovery, including deepening labor market and pension reforms, optimizing human resource allocation; Promote green transformation and digital investment, such as announcing at the recent "Choose France" summit that French companies will invest an additional 9.2 billion euros locally and focus on areas such as data centers; Continuously promote reforms in the fiscal sector, strive to further reduce the deficit, and ensure a balance between fiscal and economic growth.
However, regardless of the path of structural reform, the relevant measures will test the French government, especially in the face of livelihood concerns such as reducing unemployment and increasing income, as well as macro issues such as reducing debt and stimulating growth. How to strengthen policy balance based on sustainability and livelihood orientation will be the key to whether the French economy can continue its short-term recovery and whether it can shape vitality for Europe's second largest economy.