Anticipated economic expansion is on the horizon for both France and Paris in 2023, albeit at a moderate pace. This growth is set against a backdrop of elevated inflation and more restrictive financial conditions that exert pressure on overall economic performance. Projections indicate a gradual uptick in GDP growth over the forecast period, driven by the resumption of private consumption and a progressive decrease in inflation.
The public deficit is expected to persist at 4.8% of GDP in 2023, followed by a decline to 4.4% in 2024 and further to 4.3% in 2025. Similarly, public debt is slated to decrease to 109.6% of GDP in 2023 before climbing back to 110% in 2025, attributed partly to the enduringly high primary deficit. Real GDP is forecasted to experience moderate growth in 2023, with a 1.0% annual increase and an accumulated growth of 0.9% by the end of the third quarter.
In the latter part of 2022 and the first quarter of 2023, net exports played a pivotal role in driving GDP growth, particularly as the manufacturing of transport equipment caught up. However, domestic demand remained subdued during this period due to the prevailing high inflation and stringent financial conditions, overshadowing government support measures and dynamic wages aimed at sustaining households’ purchasing power. Notably, in the second quarter of 2023 (2023-Q2), domestic demand rebounded, emerging as the primary catalyst for growth.
The labor market exhibited dynamism throughout 2023, with the unemployment rate stabilizing at 7.2% in the second quarter, nearing its lowest level since 2008. Concurrently, the employment rate reached a record high of 68.6%. Expectations for employment growth suggest a moderation, with a projected increase of +1.2% in 2023, followed by +0.3% in 2024 and +0.3% in 2025. The unemployment rate is forecasted to rise to 7.4% in 2024 and 7.5% in 2025, after registering 7.2% in 2023.
Looking ahead to 2024, investments are anticipated to remain subdued until the latter part of the year, influenced by the lingering restrictive effects of monetary policy. Private consumption is poised to drive GDP growth, supported by expectations of decreasing inflation and a household savings rate moving closer to historical averages. Net exports are projected to make a negative contribution to GDP growth as robust domestic demand propels imports upwards. Overall, real GDP is forecasted to grow by 1.2% in 2024.
In 2025, the economy is expected to witness a growth rate of 1.4%, driven by lower inflation and more relaxed financial conditions. GDP growth is anticipated to be powered by domestic demand as the savings rate is projected to decline towards the long-term average. Net exports are foreseen to have no significant contribution to GDP growth, as robust export growth is anticipated to be offset by rising imports, propelled by the acceleration of private consumption. Investments by both households and corporations are projected to gradually recover during this period.
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