France's Q4 Economy Contracts Amid Fiscal Woes
France's economy experienced a 0.1% GDP decline in the fourth quarter of 2025, according to data released on Thursday. This contraction follows a 0.4% expansion in the third quarter and falls short of analysts' expectations for stagnation in a Bloomberg survey.
The sluggish performance was driven by decelerating consumer spending and stagnant business investment. Net trade and inventory changes also contributed negatively to the quarterly result.
This weak economic growth has left the euro zone's second-largest economy vulnerable as a protracted budget crisis forces the government to rely on temporary legislation. This instability has weighed on the broader region, where investors anticipate punitive trade measures from the new Trump administration and German manufacturing remains a drag.
In France, economic fragility has exacerbated fiscal challenges. Poor tax revenue and modest growth have pushed the 2025 budget deficit to approximately 6% of GDP. Full budget discussions are scheduled to commence next week, where Prime Minister François Bayrou's fiscal proposals will face a vote that could potentially lead to his resignation.
Finance Minister Eric Lombard has suggested that interest rate cuts and budget stability could revive the economy. However, he recently lowered France's economic growth forecast for 2025 to 0.9%, down from an earlier estimate of 1.1%.
Businesses have expressed frustration with the government's fiscal policies, with LVMH CEO Bernard Arnault warning that increased corporate taxes could drive investment abroad. "There has been a real deterioration in France's economic situation," stated Patrick Martin, head of the Medef business group.
Despite the overall economic contraction, French consumer spending rose 0.7% in December, exceeding analysts' expectations for a 0.1% increase.