2024 economic review and outlook for 2025: a slowdown in Europe and France?

Disinflation without recession in 2024

In 2024, the global economy again proved to be resilient, as in 2023, even returning to growth of 3.2% for the year despite the contraction in international trade relative to GDP and the emergence of major new uncertainties. The year was marked by two events in particular: the surprise dissolution of the French National Assembly and the election of Donald Trump as President of the United States.

Inflation was defeated on both sides of the Atlantic without a recession being automatically triggered by the aggressive tightening of key interest rates by the Fed (US Federal Reserve) and the European Central Bank (ECB) since March and July 2022, respectively. These central banks lowered their main policy rates by 100 basis points (bp) in the second half of 2024, with the ECB starting the process on June 6, ahead of a similar decision by the Fed. The easing of fiscal policies, particularly in the United States, which offset the monetary slowdown, boosted economic activity. In the United States, as in China, the momentum even came from colossal public deficits, which offset investment support, thereby strengthening potential growth. Conversely, the European continent, still trapped in the economic doldrums, continued to fall behind in the race for industrial hegemony launched by China and the United States. Overall, disinflation has in turn revitalized economic activity by boosting the purchasing power of private agents on both sides of the Atlantic.

+3.2% The rate of growth of the global economy in 2024

Political uncertainty in France following the dissolution of the National Assembly

France entered an unprecedented period of radical economic and political uncertainty after the dissolution of the National Assembly on June 9. Fiscal credibility became the chief victim of an election campaign marked by promises of radical change, unsupported by any real plans for how these promises would be financed. With the censure of Prime Minister Michel Barnier’s government on December 4, concern about political instability, despite the appointment of François Bayrou, then took prominence over fears of inflation. French GDP grew by 1.1%, as in 2023, benefitting from strong growth in public spending and a record contribution from foreign trade, the latter being chiefly linked to the decline in imports. GDP in the third quarter of the year received an artificial boost from the Olympic & Paralympic Games Paris 2024. Inflation fell sharply to an annual average of 2.0%, compared with 4.9% in 2023. The 10-year OAT averaged out at 3% for the year, as in 2023; it ended at 3.19% on December 31, however, owing to an increased risk premium of nearly 83 bp compared with Germany, and despite the 100 bp decline in the ECB’s deposit facility rate.

+1.1% The French GDP growth rate in 2024.

A slowdown in Europe and France in 2025?

In the absence of any specific shocks, the OECD expects global GDP in 2025 to grow by 3.3%, slightly more than in 2024, chiefly driven by emerging countries thanks to the decline in global inflation, monetary easing on both sides of the Atlantic, the dynamism of the US economy, and a certain rebalancing between internal and external demand in China. In the absence of a recovery in energy prices, a faster-than-expected decline in inflation is expected to further strengthen the economic environment, boosting the purchasing power of economic agents in advanced countries while indirectly allowing monetary conditions to continue to ease. In contrast to the United States, the decline in key interest rates will probably be quite sharp in Europe, reflecting the difference in economic momentum between the two regions, despite the threat of a fall in the value of the euro against the dollar. Internationally, the impact of Donald Trump’s election remains a source of uncertainty, notably regarding the rapid implementation of customs measures liable to put a brake on global trade. The eurozone would then struggle to regain a slightly less sluggish momentum (1% after 0.8%), while still lagging behind the US and Chinese economies.

Continued drift in public spending in France

In France, political instability may further complicate a significant risk of further increases in the interest rate risk premium vis-à-vis Germany and the continued drift in public spending, leading to a wider adoption of ‘wait-and-see’ attitudes. This could result in households and businesses adopting rather cautious spending behaviors, despite the a priori favorable effect of less fiscal consolidation. In particular, incentives to save are likely to remain strong, slowing the expected decline in the household savings rate owing to the need for precautionary savings with the uptick in unemployment and with individuals becoming more concerned about budgetary imbalances.

+0.8% The French GDP growth rate forecast for 2025

No longer benefiting from the previously positive impact of the 2024 Olympic & Paralympic Games in Paris, French GDP is expected to grow by only 0.8% in 2025, compared with 1.1% in 2024. Inflation is expected to average out at less than 1.4% for the year, compared with 2% in 2024. Furthermore, the 10-year OAT will probably settle at an average of around 3.1% in 2025, after 3.0% in 2024 and 2023, despite a 100 bp decline in the deposit facility rate, in a context where the French public deficit would be at best 5.4% of GDP, compared with 6.1% in 2024.