PARIS (Reuters) – French economic activity will only pick up in 2025 as lower inflation boosts consumers’ purchasing power, falling short of the government’s growth expectations in the meantime, the central bank forecast on Tuesday in its quarterly outlook.
After growth estimated this year at 0.8%, the euro zone’s second-biggest economy is on course to expand 0.9% in 2023, according to the Bank of France, which trimmed its 2023 forecast from 0.9% following weak third quarter data.
The government is more optimistic and has based its budget planning on forecasts that pegged growth this year at 1% and next year at 1.4%.
If growth turns out closer to the central bank’s forecast, the government may need to find extra savings in the budget to keep its deficit-reduction plans on track.
The Bank of France said that as inflation slows and gives households purchasing power gains, consumer spending should recover over the course of 2024, pushing overall economic growth to 1.3% in 2025 and 1.6% in 2026.
Marginally lowering its estimates, it forecast that inflation would slow from 5.7% on average this year to 2.5% next year and pass below the European Central Bank’s 2% in the first quarter of 2025.
That means that wages were likely to grow faster than inflation from 2024-2025, helping support purchasing power gains and possibly tempting consumers to lower their currently high savings rates in favour of spending more.
(Reporting by Leigh Thomas; Editing by Bernadette Baum)
