PARIS (Reuters) – The French economy is expected to stagnate in the fourth quarter, a figure in line with INSEE’s previous forecast which nevertheless warns of political uncertainty and the loss of steam in the European recovery.

In its new economic report published Tuesday, INSEE explains that activity would increase by 0.2% in the fourth quarter against a backdrop of low morale among economic players, growth entirely offset by the impact of the Olympic Games.

The business climate for companies thus remains below its long-term average since the announcement of the dissolution, while household confidence remains “quite far from the historical average”, warns INSEE.

Added to the political factor are European determinants, restrictive monetary conditions limiting investments, while high energy prices and competition from Chinese manufacturers weigh on exporters, adds the institute.

Activity could remain constrained next year: by mid-2025, “foreign trade would normalize, while the identical renewal of the previous year’s budget would result in a brake on spending “, while these two factors supported growth this year, summarizes INSEE.

Gross domestic product (GDP) growth is expected at 0.2% in the first and second quarters of 2025.

Private demand would then take over, with household consumption benefiting from the decline in inflation. Business investment, on the other hand, would suffer from uncertainty, despite rate cuts from the European Central Bank (ECB).

INSEE forecasts a stabilization of core inflation at 1.5% in June 2025, while total inflation would reach 1%, below the 2% inflation target set by the ECB.

Unemployment is expected to rebound to 7.6% by mid-2025, with the private sector expected to start destroying jobs while job creation in the public sector should slow down.

However, INSEE’s forecasts remain shrouded in uncertainty.

“The political situation and its budgetary consequences remain a source of unknowns,” notes the institute, which does not rule out an “additional wait-and-see attitude” in the face of an unprecedented situation.

The special law adopted Monday by the National Assembly will make it possible to apply the 2024 budgetary guidelines in 2025, but INSEE notes that “the direction of budgetary policy could prove to be more restrictive once political uncertainty is lifted.” .

The consequences of Donald Trump’s re-election on world trade also remain unclear, adds the institute.

(Written by Corentin Chappron, edited by Blandine Hénault)

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