The French economy remains close to stagnation even though GDP rebounds
As expected, French GDP is slightly rebounded in the first quarter of 2025, with a quarter-to-quarter growth of 0.1% (after -0.1% in the fourth quarter of 2024). Throughout the quarter, household consumption stagnates, while public consumption slows sharply ( +0.1% during the quarter compared to +0.4% in the fourth quarter), after six weeks of special laws that limit public expenditure before voting in the 2025 budget and a tighter budget afterwards.
Investment continues to fall, for households, business and public administration. This is already the seventh consecutive quarter of the total number of total investment in France. Overall, domestic demand contributes zero to GDP growth. Inventories make a clear contribution to 0.5 points growth during this quarter. Foreign trade weighing France GDP of -0.4 points, with an increase in the quarter ( +0.4%) while exports dropped sharply (-0.7% in the first quarter versus +0.2% in fourth). Finally, it should be noted that the output in France rose 0.2% during the quarter, thanks to the acceleration of manufacturing and services.
Stagnation remains
Overall, while GDP growth meets expectations, the underlying details are somewhat weaker, with an inventory making a significant contribution. Data shows that French economic activities in the first quarter are almost stagnant, trends that tend to survive in the future. Additional customs duties in the US and direct and indirect impacts they will postpone the rebound of the French economy. We estimate that the direct effect of 10% permanent import duties in the US on French GDP (through export reduction) will be around -0.1%.
Adding this is the effect of uncertainty, slowdown in the global economy and tighter fiscal policies, all of which will burden French economic activities throughout the year. Cooling in the labor market is likely to limit the recovery of household consumption, and the level of savings is determined to remain high.
As a result, the French economy tends to remain close to stagnation for the remaining year, with quarterly growth floating between 0% and 0.1% over the next few quarters. For 2025 overall, we expect GDP growth of 0.4% and 0.8% in 2026.
Inflation remains low
French inflation reached 0.8% in April, the same as in March. Energy prices, down 7.9% of years-year-year, continue to burden inflation. The inflation of goods remains slightly negative, at -0.2%, as in March. Service inflation is also stable, still at 2.3%. On the other hand, as expected, food inflation increased again, to 1.2% compared to 0.6% in March.
Therefore, French inflation remains very low and must remain below 2% for this year as a whole. Energy prices will continue to burden inflation, after the price of oil and gas in the world market, but also because the regulated electricity tariffs will be lower than last year. Inflation in manufacturing items can fall further, given the expected slowdown in the global economy and transfer in the flow of Chinese trade. In addition, Euro appreciation will reduce import prices. Inflation in service must remain more dynamic than others, but must gather towards the 2%target. As a result, inflation in France tends to remain below the average European, giving the European central bank additional arguments that support continue to cut interest rates.
Source: Ing
