OECD Economic Outlook, Volume 2025 Issue 2

France

GDP growth is projected to decrease to 0.8% in 2025, before increasing to 1% in 2026 and 2027. Domestic and international uncertainty have weighed on growth in 2025, delaying consumption and investment decisions, though strong exports from the aeronautics sector have provided some offset. Assuming a new budget is adopted by late 2025, reduced uncertainty will improve growth prospects in 2026 and 2027. Inflation is expected to edge up as earlier downward pressures from energy and telecommunications prices ease, but remain contained, reaching 1.6% in 2027.

The fiscal deficit is projected to fall from 5.8% of GDP in 2024 to 5.4% of GDP in 2025. Further consolidation is planned for 2026 and 2027, bringing the fiscal deficit to 5.2% of GDP and 5% of GDP, respectively, mainly through increased revenue measures. Despite these efforts, public debt will rise to 122.5% of GDP by 2027. Stabilising debt by 2030 will require deeper fiscal adjustments and structural reforms to boost investment, especially through improved digital adoption, innovation support for SMEs, and education and training.

Policy uncertainty weighs on economic growth

Elevated domestic uncertainty in 2025, marked by two Prime Ministerial resignations, has weighed on growth, though economic activity picked up in the third quarter, driven primarily by strong aeronautics exports and business investment. Business lending has continued to expand, with outstanding financing to non-financial corporations up 2.9% year-on-year in September 2025. Housing loans have also risen steadily since January 2025, returning to February 2023 levels by September, driven mainly by new demand. Other short-term indicators are mixed. The business confidence indicator has returned to its long‑term average while consumer confidence has remained significantly below it. The labour market weakened in the third quarter, but remains broadly resilient, with employment still above pre-pandemic levels. The INSEE employment climate indicator also improved slightly in October–November. Inflation fell faster than expected during the first half of 2025 and was 0.8% in October, driven by lower regulated energy prices, slower wage growth, and increased competition in telecoms.

Direct exposure to US tariffs on imports is limited, with the United States accounting for just 5% of both exports and imports, but France remains vulnerable to a broader slowdown in global demand, particularly in Europe which absorbs 55% of French exports. However, rising defence spending across the EU presents opportunities for domestic companies, especially in aerospace and advanced manufacturing.

France 1

Source: OECD Main Economic Indicators database; and https://policyuncertainty.com.

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France: Demand, output and prices

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France 2

1. Year-on-year growth rates.

2. Maastricht definition.

Source: OECD Economic Outlook 118 database.

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The expected reduction in the deficit will be insufficient to stabilise debt

The fiscal deficit is expected to fall from 5.8% of GDP in 2024 to 5.4% of GDP in 2025, reflecting an almost 1% adjustment in the underlying primary balance, the largest in a decade, excluding the post-pandemic correction in 2022. This has mainly been achieved through higher taxes. The government aims for a deficit of 4.7% of GDP in 2026, requiring a similar consolidation effort. Planned measures include extended taxes on large firms and high earners, a new tax on holding companies, spending cuts at all government levels, slower health spending growth, and freezes on pensions and benefits. Due to the political uncertainty, the deficit is projected to reach 5.2% of GDP in 2026, with a less ambitious adjustment in the underlying primary balance of 0.4% of potential GDP. There is no detailed plan for 2027 yet, but a stronger 0.6% of GDP consolidation effort is assumed, which is closer to the 0.7% of GDP target in the medium-term budgetary plan. This results in a 5% of GDP deficit in 2027. Room for further consolidation is limited by a wider output gap, the end of EU recovery funds, and persistent political uncertainty. The cost of public debt has increased significantly, reflecting persistent concerns over policy uncertainty and the government’s ability to manage public debt.

Monetary easing since mid-2024 has eased lending conditions, gradually supporting business and housing investment. However, pass-through to long-term rates remains incomplete, as seen in the continued lag in new housing loan growth relative to the euro-area average.

Renewed uncertainty will further delay the rebound in growth

After a sharp slowdown in 2025, GDP growth is expected to increase in 2026 and 2027, though ongoing policy uncertainty will dampen domestic demand for some time. Exports will surge in late 2025, led by a rebound in aeronautics and shipbuilding, but will be significantly offset by inventory depletion. Aeronautics, which accounts for 10% of exports, will continue to support export growth, driven by record orders, expanded overseas production and tariff exemptions. Domestic demand is set to weaken at the end of 2025 as confidence has dropped, following the political turmoil and uncertainty over the budget, leading to job losses. Consumption and investment are expected to recover gradually as fiscal clarity improves. After having reached almost 19% in the second quarter, the highest level since 1979 (excluding the pandemic period), the household gross saving rate will remain exceptionally high but gradually decline as consumption strengthens. Residential investment will continue to rise, driven by building permits issued since late 2024. Business investment will remain subdued until early 2026 before accelerating. Fiscal consolidation in 2026 and 2027 will weigh on growth, partly offset by the delayed effects of monetary easing and a positive contribution of government consumption to growth. Inflation will stay below the euro area average through 2026 due to weak growth, despite food price pressures and will slightly increase in 2027.

Risks are tilted to the downside. Renewed policy uncertainty if no budget is voted at the end of the year due to the absence of a clear majority in parliament may further constrain households and firms’ investment decisions. A softer stance on fiscal consolidation would support growth, but push up the public debt ratio, raising bond yields and crowding out private investment. The rise in defence spending in Europe could benefit French producers sooner than expected and further support exports.

Containing debt and boosting potential output require comprehensive reforms

Sticking to fiscal consolidation is vital for France to stabilise and reduce public debt eventually. Achieving the deficit target of 3% of GDP by 2030 will require a broad strategy: spending cuts, a shift towards less distortive taxation and structural reforms to boost potential growth. Accelerating technology adoption, including Artificial Intelligence, is key to unlocking productivity gains. This calls for stronger support to small and medium-sized enterprises (SMEs) and efforts to improve technological skills, particularly through better education for disadvantaged students and increased training for the less qualified. Innovation performance can also be enhanced by redirecting support to high-potential SMEs, improving public research commercialisation and reducing barriers to scale for medium-sized companies. France maintains generally competition-friendly product market regulations, especially in digital markets, supporting the business environment. However, France’s strictest regulations are in the services sector, unchanged since 2018, with high barriers for architects and accountants and significant practice controls for lawyers and real estate agents. Retail and medicine distribution also remain tightly regulated.