France's Economy Contracts at Year-End Amidst Budget Crisis

Key Points:

* France's fourth-quarter GDP declined by 0.1%, below analyst expectations of stagnation.
* Slow consumer spending and stagnant business investment contributed to the contraction.
* Net trade and inventory changes further weighed down the economy.
* The EU's second-largest economy faces challenges due to a prolonged budget crisis and potential punitive trade measures from the US.
* The ECB is expected to cut interest rates to support growth.

Economic Fragility in France:

* Fiscal struggles, including poor tax revenue and weak growth, have led to a budget deficit of 6% of output.
* Uncertainty over a full budget for 2025 has led businesses to postpone investments.
* Consumer confidence remains low, and government spending has been limited by stopgap legislation.

Business Concerns and Consumer Spending:

* Companies have expressed frustration with increased corporate taxes, which they fear could drive investment overseas.
* Medef business group has voiced concern and anger over political instability.
* Despite the economic weakness, consumer spending rose 0.7% in December, surpassing expectations.

Outlook and Policy Measures:

* France's economic outlook remains subdued due to the budget crisis and other uncertainties.
* The government has lowered its growth forecast for 2025 to 0.9%, reflecting a slowdown from 2024's 1.1% expansion.
* The ECB is likely to cut interest rates to support growth, but the impact of these measures on the French economy remains to be seen.