'Fiscal Instability and Heatwave': France Lowers This Year's Growth Forecast to 0.5% Again

Abandoning Fiscal Deficit Target in Practice
Government Bond Yields Reach Highest Level Since 2008

The French government has once again lowered its economic growth forecast for this year, as chronic fiscal instability has been compounded by the adverse effects of a heatwave.

Yonhap News Agency

According to foreign media reports on the 11th (local time), French Minister of Economy and Finance Roland Lescure announced that the government now expects economic growth of 0.5% this year and 1.0% next year. This marks a further downward revision of 0.2 percentage points from the previous forecast of 0.7% announced in July.

At the beginning of this year, the French government was confident it would achieve 1.0% growth, but the outbreak of the war with Iran at the end of February, which led to a sharp increase in global oil prices, and the broader geopolitical crisis have caused repeated reductions in growth projections. The French National Institute of Statistics and Economic Studies (INSEE) also cut its own growth forecast for this year from 0.7% to 0.4% just the previous day.

Minister Lescure described this year as "an extreme crisis with four different shocks occurring simultaneously," citing domestic political uncertainty, soaring energy prices, extreme summer weather, and rising borrowing costs as the main factors.

In fact, the French Ministry for the Ecological Transition previously warned that losses from this summer's heatwaves, wildfires, and droughts are projected to reach between 10 billion and 15 billion euros (approximately 15.6 trillion to 23.4 trillion won), equivalent to 0.3% to 0.5% of the country’s GDP. Adding to these challenges, political uncertainty ahead of the presidential election in April next year has triggered a sharp rise in government bond yields, thus increasing the interest burden. The yield on France's 10-year government bonds, which was in the low 3% range in early February, has climbed to 4.448% as of this date, marking its highest level since 2008. The spread with the yield on German 10-year government bonds—a safe asset within the eurozone—has widened to 94.5bp (1bp = 0.01 percentage point), significantly exceeding the levels seen in southern European countries such as Spain, Italy, and Greece.

As of the first quarter of this year, France's national debt-to-GDP ratio stood at 117.6%, far surpassing the eurozone average of 88.9%. Last year, the country's fiscal deficit reached 5.1% of GDP, ranking fourth in the eurozone. Minister Lescure acknowledged that "a 5% deficit is no longer an option," effectively admitting that the government can no longer maintain its previous target of reducing this year’s fiscal deficit to within 5% of GDP.

This content was produced with the assistance of AI translation services.