France’s economic situation is facing some of the most grueling challenges, with almost no signs of getting better within the foreseeable future. This month’s data underscores a worrisome trend with manufacturing output and industrial production, ringing alarm bells for those interested in the country’s economic well-being. As France heads into what looks to be a fraught budget negotiation period, huge question marks hang over both fiscal policies and the broader economic outlook.
In May 2025, French manufacturing production decreased by 1.0% from the previous month. It came on the heels of a downwardly revised 0.7% drop in April. Even worse, this decline contributes to a national trend of declining productivity. As of September, France’s manufacturing production is still 0.4% under where it was in the third quarter of 2024. Total industrial production was down 0.5%. We’re still reeling from last month’s even bigger contraction of a full 1.4%, making matters worse.
Construction Sector Declines
The building industry is in crisis. Activity has decreased by 3.8% year-on-year over the past three months. Additionally, construction output decreased 0.5% for the second month in a row, marking ongoing decline in this crucial sector. This drop further underscores the difficulties that the construction industry is experiencing. It highlights the larger economic climate, which has really increased the risk associated with investment and development.
The double whammy of cutbacks in manufacturing and construction makes people more fearful about losing their job and holding onto any prospect for recovery. Business sentiment in France’s beleaguered industrial sector has taken another step backwards. Confidence remains shaken across the rest of the economy, as evidenced by recent surveys in June.
Currency Fluctuations Impacting Economic Performance
Compounding this pressure on the euro area economy is the dramatic euro appreciation against most of its potential trading partners. The euro has been on the rise since the beginning of the year. It has gone up by 5% in nominal effective terms and by 4.3% in real terms. Notably, it has most notably appreciated 13.5% against the US dollar in the same period. This increase has had a dramatic impact on the export competitiveness of France, making it that much harder for home-grown firms to prosper abroad.
While other eurozone economies are starting to pull out of the malaise, it’s now France’s turn to drag down the average with its woeful performance. Forecasts predict France’s GDP will probably contract 0.1% quarter-on-quarter in Q2 2025. This gloom accounts for the very sharp contrast with more optimistic projections for all of its peer countries. Real growth for the full year is now only forecast at 0.4%, a drop from 1.1% in 2024. Analysts anticipate a modest recovery with a forecasted growth rate of 0.8% in 2026, but doubts linger about the sustainability of such projections.
Budget Negotiations and Fiscal Uncertainty
As France finds itself on the cusp of a difficult period of budgetary discussions, the specter of home-grown fiscal uncertainty looms large. Policymakers need to tread carefully with these negotiations so that they don’t worsen the economic storm already brewing. The result of these negotiations might meaningfully determine their long-term economic success or failure as well as the public perception of that success.