French GDP contracts in the last quarter of 2024, with a grim outlook for 2025

As we predicted, French GDP contracted by 0.1% in the fourth quarter, after growth of 0.4% in the third quarter of 2024. This contraction was partly due to the aftermath of the Olympic Games, but political uncertainty and a less favourable international environment also played a role.

As a result, domestic demand slowed in the fourth quarter, with household consumption slightly less dynamic (+0.4% compared with +0.6% in the third quarter) and investment still falling (-0.1% compared with -0.3%), as did exports (-0.2% compared with -0.8%). International trade and inventories made a negative contribution to growth.

Ultimately, over 2024 as a whole, French GDP grew by 1.1%, matching the growth rate of 2023. Investment fell sharply, particularly household investment, which declined by 6% year-on-year (after an 8.2% drop in 2023) due to high interest rates and low confidence. Business investment, which had remained buoyant in 2023, fell by 1.6% over the year on the back of low capacity utilisation and a subdued demand outlook.

In 2024, French growth was driven by public consumption (+2.1% over the year) and public investment (+3.3% over the year), which bodes ill for 2025, as budgetary constraints are bound to lead to less dynamic public spending. In terms of production, services drove French growth in 2024 (+2.5% for market services, +2.3% for non-market services). The production of goods contracted by 0.1% over the year, after +0.9% in 2023, while production in the construction sector fell by 2.3% compared with an increase of 0.2% in 2023.

Overall, the details point to a more deteriorated economic situation than the overall figures suggest. The French economy slowed during the year and the end of 2024 was particularly weak.

Ending 2024 with a contraction in GDP means a weak carry-over effect for 2025 and the government's forecast of 0.9% GDP growth over 2025 as a whole will be very difficult to achieve. The first indicators published for 2025 also point to a weak first quarter.

The uncertainty surrounding the 2025 budget and the possible fall of the Bayrou government continue to weigh on domestic demand, and this is likely to persist over the coming months. Household consumption growth is unlikely to accelerate. 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 low potential for long-term rate decline on the markets also mean that household and business investment is likely to remain weak in 2025. Although the 2025 budget has not yet been voted on, and many uncertainties remain over fiscal policy for this year, the need to reduce the public deficit, which reached 6.1% of GDP in 2024, will weigh on GDP growth.

With exports likely to be hit by renewed trade tensions, there is every reason to believe that industrial activity in France will be very subdued over the coming months. The services sector should continue to fare better than industry, but a slowdown is also expected. In January, order books were still down in the construction sector, which is likely to have another difficult year.

We expect very weak growth in the first quarter, at best 0.1% quarter-on-quarter. Over 2025 as a whole, GDP is expected to grow by just 0.6%. 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%.