France Predicts Further Slowdown In Economy, Lowers 2024 Growth Outlook; EU Economy Enters Weaker Ground Than Foreseen

France’s Finance Minister Bruno Le Maire announced that due to the ongoing conflicts in Ukraine and Gaza, as well as a slowdown in major trading partners like Germany and China, the government has revised down its GDP growth forecast for 2024 from 1.4% to 1%.

During an interview with French television TF1, Le Maire outlined plans to cut state spending by 10 billion euros ($10.8 billion) across all government departments and agencies.

The same comes after weakened cues and the UK economy slipping into recession; Le Maire emphasized that the revised growth forecast, although still positive, reflects the impact of ongoing geopolitical events such as the conflicts in Ukraine and the Middle East, disruptions in maritime transport in the Red Sea, and economic deceleration in China and Germany.

However, he has assured Parisians that there would be no tax hikes or reductions in social security payments, but all ministries and agencies would contribute to expenditure reductions.

He detailed the immediate actions, stating that five billion euros would be trimmed from operating expenses across ministries, with another five billion euros targeted for cuts in public policies, notably including reductions in public aid for development and subsidies for residential building renovations.

Additionally, budgetary adjustments will affect state-operated entities like export agency Business France and the ANCT agency for regional government policies.

Le Maire affirmed the government’s commitment to meeting its target of reducing the 2024 state deficit to 4.4% of GDP, mentioning the possibility of implementing a supplementary budget in the summer depending on economic conditions and political circumstances.

Likewise, the government plans to progressively decrease the fiscal deficit in the coming years until it falls below the EU’s 3% ceiling by 2027.

These adjustments align with recent downward revisions in growth forecasts by the European Commission, the OECD, and France’s statistics agency INSEE.

For instance, the European Commission lowered its 2024 GDP growth projection for France from 1.2% to 0.9%, and similarly revised down Germany’s forecast from 0.8% to 0.3%.

The OECD also revised its forecast for French growth in 2024 from 0.8% to 0.6%, while INSEE predicted a modest quarter-on-quarter growth of 0.2% for the first and second quarters of the year.

The economic slowdown contrasts with the solid economic growth experienced post-Covid, with the French economy expanding by 0.9% in 2023, following a 2.5% growth in 2022 and a notable 6.4% surge in 2021.

EU Economy Enters 2024 on Weaker Ground Than Foreseen

The European Commission’s Winter Interim Forecast, released on Thursday, had downgraded growth expectations for both the European Union (EU) and the euro area to 0.5 percent in 2023, compared to the 0.6 percent projected in the Autumn Forecast last November.

In 2024, the EU’s economic growth forecast has been lowered to 0.9 percent from the autumn estimate of 1.3 percent, while the eurozone’s growth outlook has been revised down to 0.8 percent from the previously predicted 1.2 percent.

Valdis Dombrovskis, the executive vice president of the European Commission for an Economy that Works for People, remarked, “After a challenging 2023, the European economy has emerged slightly weaker than anticipated, although a gradual recovery is expected to accelerate throughout this year and into 2025.”

European Commissioner for Economy Paolo Gentiloni commented, “The European economy faced significant challenges in 2023, testing our resilience with factors such as diminished household purchasing power, tightening monetary policies, reduced fiscal support, and weakened external demand.”

The EU narrowly avoided recession at the end of 2023 and enters 2024 with a less robust outlook than initially projected.

Still, there are some positives; the forecast anticipates an improvement in economic growth in 2024, supported by declining inflation rates, real wage growth, and a resilient job market. The latter half of the year should witness a stabilization in growth momentum, continuing into the end of 2025.

Gentiloni noted, “The expected rebound in 2024 may be more moderate than previously anticipated, but it is expected to gain momentum gradually, fueled by slowing inflation, rising real wages, and a robust labor market. Investment is forecasted to remain steady, benefiting from relaxed credit conditions and funding from the Recovery and Resilience Facility.”

The Winter Economic Forecast suggests that economic activity in 2025 is projected to expand by 1.7 percent in the EU and 1.5 percent in the euro area.

“Growth in 2025 is expected to strengthen, while inflation is anticipated to approach the European Central Bank’s target of two percent,” Gentiloni added.

The forecast predicts a decline in inflation from 6.3 percent in 2023 to 3 percent in 2024 and 2.5 percent in 2025 for the EU, and from 5.4 percent in 2023 to 2.7 percent in 2024 and 2.2 percent in 2025 for the euro area. Falling energy prices mainly drove this decrease in inflation in 2023.

Dombrovskis stressed the ongoing uncertainty in the global arena, especially concerning geopolitical tensions, which could adversely affect growth and inflation, while tensions in regions like the Middle East and the Red Sea may marginally impact inflation rates.

The forecast acknowledges risks associated with consumption patterns, wage growth, profit margins, persistently high interest rates, and the potential impacts of climate change, particularly extreme weather events.

Are More Job Cuts In The Horizon
Following weakening cues and headwinds, as companies globally struggle and cost-cutting (layoffs) and cost optimization (integration of generative AI) become the mantra, there is a possibility of more layoffs even as downgrades in salary have become the new norm.

The same has been witnessed in recent instances of job reductions at European companies –

1) Shell – in 2024, Shell is set to eliminate 200 positions within its Low Carbon Solutions division and assess an additional 130 roles within the same division.
The move follows Shell’s decision in 2021 to lay off 698 employees at its Convent refinery in Louisiana, aimed at curbing carbon emissions.

2) Continental AG -in February 2024, Continental AG unveiled plans to reduce its global workforce by 7,150 positions by 2025, with the goal of enhancing competitiveness.

3) Volkswagen – in October 2023, Volkswagen Group announced intentions to cut 2,000 jobs at its software unit, Cariad, as part of a restructuring initiative.

Throughout 2023, European tech companies witnessed substantial layoffs, resulting in over 150,000 tech professionals losing their jobs.