Slowdown forecast in economic growth in 2023

22 Jul 2022

Economic growth in France will endure a steep slowdown in 2023 due to increasing geopolitical risks, hindering improvement in the public sector budget deficit, according to the Finance Ministry.

As part of an update to long-term forecasts, the ministry stated economic growth within the second largest economy in the eurozone was now forecast to slowdown from 2.5% in 2022 to 1.4% in 2023.

"The geopolitical uncertainties are huge both in terms of energy and trade," stated Finance Minister Bruno Le Maire, noting the risk of a cut in Russian gas, China lockdowns and a U.S. economic slowdown.

As the French economy benefited from a series of reforms such as unemployment insurance and changes to the pension system, growth is forecast to gradually rally up to 1.8% in 2027, the Finance Minister added.

Due to the lower growth figure expected in 2023, the public sector budget deficit is forecast to stay the same as this year at 5% of GDP, Reuters reports. This would then be subsequently reduced to within a European Union limit of under 3% by 2027, the ministry added.

This would be accomplished by maintaining annual real public spending growth to an average of 0.6% over the coming five years, which Bruno Le Maire said was a two-decade low.

"The nation's growth has to increase faster than public spending," Le Maire stated. Although the central government was predicted to cut spending growth by 0.4% on average and local governments by 0.5%, social spending would be permitted to increase 0.6%, the Reuters report adds.

In addition, the French Services Purchasing Managers' Index (PMI) fell to 52.10 points in July from 53.90 in June, it was reported on Friday, the third consecutive decline as business activity in the country falls further.

Commenting on the flash PMI data, Senior Economist at S&P Global Market Intelligence Joe Hayes said: “July ‘flash’ PMI data raises further concerns that the French economy is heading towards a recession as data signalled worsening trends across a number of key indicators.”