Economic activity remains very weak in France

The year is not off to a good start for the French economy, following a very weak end to 2024. The business climate remained almost stable in France in January, at 95, a level below its long-term average. Business sentiment was stable in the services sector, but below its long-term average in almost all service sub-sectors, except for real estate activities. According to business leaders in the services sector, perceived uncertainty is once again on the rise.

Business sentiment is also stable in the construction and retail sectors, but order books are shrinking. In industry, the business climate is deteriorating due to a sharp fall in order books, which are at their lowest level since 2014. In wholesale trade, the business climate is deteriorating again.

Collectively, these data point to a weak start to 2025, following negative fourth-quarter growth due to political and budgetary uncertainty, the aftermath of the Olympic Games and a less buoyant international environment.

The uncertainty surrounding the 2025 budget continues to weigh on domestic demand, which is likely to persist over the coming months. In particular, household consumption is likely to remain very subdued. Despite falling inflation and rising real wages, increased fears about unemployment and uncertainty are likely to lead to a further rise in the household savings rate. Uncertainty and the limited potential for a fall in long-term interest rates also mean that investment by households and businesses will remain subpar in 2025.

With exports likely to be hit by renewed trade tensions, there is every reason to believe that industrial activity in France will be very modest over the coming months. The service sector, meanwhile, should continue to fare better than industry, but a slowdown is also expected. Today's data indicate that order books are still falling in the construction sector, which is likely to have another difficult year.

The business climate data confirms our forecast of very weak growth in the first quarter, of around 0.1% quarter-on-quarter, compared with -0.1% in the fourth quarter of 2024. This weak start to the year means that GDP growth is likely to be just 0.6% in 2025, compared with 1.1% in 2024 and 2023, lower than the 0.9% expected by the government. A recovery should take place in 2026, but in a difficult international environment and with a restrictive French fiscal policy, it could remain limited to 1%.