French economy appears to have run out of cash
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Emmanuel Macron Contemplates Early Elections Amid France's Sagging Economy
Emmanuel Macron, the President of France, has hinted at the possibility of early parliamentary elections, which might seem unusual considering the political crisis triggered by the previous early elections and Macron's increased international focus. However, things aren't as straightforward for France and its leader. Macron's home situation, to put it mildly, leaves a lot to be desired. His heightened international activity, according to many political analysts, is part of a strategy to divert French citizens' attention from their country's numerous economic woes and lack of achievements abroad.
France, being the second-largest economy in the Eurozone, is still lagging behind other European countries in terms of development pace. As the European economy recovers from the pandemic, the French economy seems stuck in a rut. According to the French National Institute of Statistics and Economic Studies (Insee), France's GDP growth is projected to be only 0.6% in 2025, marking the first time in three years that it falls below the eurozone average of 20 countries[1]. In the first quarter, the GDP grew by 0.1%, and it is projected to increase by 0.2% in each of the remaining three quarters.
The situation isn't looking promising for Macron or the government of François Bayrou, either, with ongoing uncertainty regarding budget cuts[1].
"The French economy seems to be swimming against the tide and the rest of the continent," states the Insee forecast. "Despite ongoing business activity in 2023-24 being higher than in other European countries, the French engine of growth has stalled."
Another persistent issue is France's stagnant growth despite its sizeable presence in the Eurozone economy. This situation poses significant problems for French authorities, especially at a time when they are not grappling with China or Russia but their main ally, America. In April, the President of the United States declared a trade war nearly worldwide, including Europe. Moreover, trade disputes and other disagreements with Donald Trump need to be addressed, along with the urgent need for tens of billions of euros for modernizing the French military and the escalating longstanding conflict between Israel and Iran, which could potentially escalate into a full-blown regional war.
According to economists at Insee, external uncertainty regarding massive spending plans proposed by German Chancellor Merkel also negatively impacts the French economy. The French government is expected to soon present a budget-cutting plan, but no details have been revealed yet.
"Announced expected budget cuts in early July could bring about considerable change in the economy," explain the authors of Insee's forecast. "They could either restore confidence or lead to further stagnation."
The Root Causes of France's Economic Struggle
1. Slumping Manufacturing SectorThe manufacturing sector has been in a persistent downturn for some time. The Purchasing Managers' Index for manufacturing dropped to 47.8 in June 2025, marking its steepest contraction in over two years[2]. This decline is due to a variety of factors:
- Overstocked client inventories, weak domestic demand, and faltering exports, particularly to North Africa and the United States, are affected by geopolitical instability and trade tensions, including potential new tariffs[2][3].
- High input costs and the impact of supply chain reshoring efforts that reduce demand for French industrial goods.
- Specific difficulties in key industries like automotive, struggling with saturated European markets and a shift toward electric vehicles[2].
2. Struggling Services Sector and Overall Private Sector ContractionAlthough the services sector is performing slightly better than manufacturing, it remains in contraction territory with a PMI of 48.7, indicating ongoing economic weakness[2][4]. The overall private sector activity has been declining since the middle of 2025, reflecting reduced new orders and subdued domestic demand[4].
3. Investment and Economic UncertaintyInvestment levels have dropped significantly due to restrictive monetary policy, high costs of capital, and substantial economic and political uncertainty[1][5]. The economic outlook remains clouded, with a widening output gap expected over the next two years[1].
4. External FactorsInternational trade tensions, including sanctions from the United States, and geopolitical disruptions, notably in North Africa and the Middle East, exacerbate the economic challenges[2][3][4]. Energy costs also have a negative impact on competitiveness and net exports[5].
5. Modest Economic Growth ProjectionsThe Bank of France projects merely modest GDP growth for 2025, with slight growth expected in Q2 following a tepid 0.1% increase in Q1. The subdued growth is partly due to multiple public holidays and ongoing global trade frictions[3].
Impact on President Emmanuel Macron and the French Government
The economic troubles pose political and governance challenges for President Emmanuel Macron and his administration:
- Political Pressure: The ongoing economic weakness, industrial decline, and pervasive economic uncertainty weaken public confidence in Macron's economic policies, potentially impacting his political capital and popularity.
- Policy Challenges: The government faces the daunting task of revitalizing investment and industrial competitiveness amid structural shifts—such as the transition to electric vehicles—and external geopolitical risks. Deregulation and defense investments offer some support, but they may be insufficient to counterbalance broader headwinds in the near term[4].
- Economic Reform Urgency: Macron's administration is challenged to steer the economy through this critical phase by fostering innovation and adaptation in struggling sectors, notably manufacturing, while managing social expectations amidst a fragile economic recovery.
In conclusion, France's economic struggles stem from a prolonged manufacturing slump, service sector contractions, subdued investment, and external geopolitical and trade pressures. These factors slow growth despite France's size in the Eurozone economy and place considerable political and economic pressure on President Macron and his government to implement reforms and stimulate economic resilience[1][2][3][4][5].
- The French government, grappling with budget cuts and the need for significant investments in modernizing the military, may look towards the finance industry for potential sources of funding, as France's economy continues to struggle against the tide of economic woes.
- With the manufacturing sector in a persistent downturn and the services sector also contracting, the finance industry could play a crucial role in spurring economic growth in France, particularly in helping to attract investments and boosting confidence in the economy, which has waned due to ongoing economic and political uncertainty.
