Exclusive: French Treasury Chief Economist Rouzet: Don’t See Recession Scenario for France

27 January 2025

By Marta Vilar – MADRID (Econostream) – The French economy should not suffer recession, with annual growth likely to hover around 1%, according to French Treasury Chief Economist Dorothée Rouzet.

In an interview last week with Econostream (transcript here), Rouzet said that she did not ‘see a scenario now in which France could enter a recession.’

While the Treasury had forecasted the French economy to grow by 0.9% in 2025, which was below its potential growth of 1.2%, that was ‘quite far from recession’, she stated.

France had withstood recent crises, quickly recovering from Covid and showing resilience during the energy shock, she said.

‘We don’t see any reason to have a very dark picture now’, she said.

Regarding the factors driving France’s weak growth, Rouzet said that ‘it’s undeniable that the current situation is weighing on economic growth by causing this wait-and-see attitude among economic agents.’

Asked about the impact of German economic weakness on France, the French Treasury chief economist confirmed that the effect was felt through trade, given that Germany was France’s main buyer, accounting for 14% of French exports.

‘The impact is significant but not massive: we usually estimate that for every percentage point of German growth, the spillover effect on French growth is of 0.1 percentage point’, she said.

Having French inflation below 2% was positive for the recovery of consumption, according to Rouzet, who did not suggest concerns about potential undershooting of the inflation target.

‘[T]he ECB target is 2% for the Eurozone on average, which is consistent with more mature economies like France being somewhat below and economies that still have some catch-up to do being somewhat above’, she said.

Such a low inflation reading could be explained in most part by the turnaround of past shocks and monetary policy tightening, she indicated, while economic weakness was only playing ‘a minor role.’

In the event of a trade war featuring a 10% across-the-board tariff and a 60% tariff on Chinese products, the effect on the French economy would be ‘mild’, with a -0.1% impact on GDP by 2030, Rouzet said citing estimates of French research centre CEPII.

‘But even in this scenario, which is hopefully maximalist in terms of the level of tariffs, the overall hit to the French economy from the tariffs would not be massive’, she stated.

A weak euro would have a ‘positive but quite limited’ impact on France as it would affect the volume of exports of goods and the tourism sector, according to Rouzet, who also acknowledged that only a small amount of French exports was denominated in foreign currencies.

Asked if importing Chinese deflation in the event of a re-routing of goods hit by US tariffs was a bigger threat than other inflationary forces, the French Treasury chief economist showed more concern for structurally deflationary pressures.

‘If we look beyond the cyclical inflation dynamics, the concern more generally is to avoid going back to structural weak growth, demand, productivity and inflation, rather independently of a potential China effect’, she said.

The turmoil seen in global bond markets given the recent long-term yields surge, especially in the UK, was not regarded as an ‘immediate cause for concern’ by Rouzet.

France had projected such movement in its interest rate assumptions on the budget bill, so there was ‘some room’ for it not to affect the French fiscal trajectory, she said.

As for the increase of the French spread with the German bund to levels above those of the Greek spread, Rouzet said ‘such comparison is of limited relevance because Greece has a much smaller issuance program.’

The situation in the French bond market was ‘much more calm now’, there was more ‘clarity’ around the fiscal situation and ‘the adoption of the budget should help’, she said.