Serious Economic Challenges Of PM Michel Barnier’s Budget

Michel Barnier refused to put on a front when he arrived at Matignon, saying, “The budgetary situation that I am discovering is very serious,” even if it upset some long-time Macron supporters who saw this new Prime Minister as decidedly ungrateful.

The budget is already tied up, with its share of savings and tax rises, and it appears that the measures proposed to tackle the rising public deficit may split growth by two.

The French Economic Outlook Observatory (OFCE) estimates that the Michel Barnier budget might reduce GDP growth by 0.8 percentage points in 2025. That is 0.3 points lower than the government’s prediction.

However, as Le Monde points out, the independent authority based its projections solely on the measures publicly disclosed in the draft financial bill when it was submitted to the Assembly.

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Both the government and the opposition will be able to dramatically change the budget by passing amendments.

Certain measures, such as raising the airline ticket tax or implementing a new steep cut in public spending, are being studied in the corridors of certain ministries and might have an even greater impact on growth.

According to the report’s principal authors, economists Éric Heyer and Xavier Timbeau, growth is driven by two factors: foreign trade and state spending.

If one or both are reduced, the country’s overall wealth decreases. Furthermore, the OFCE anticipates a public deficit of approximately 5.3% of GDP by the end of 2025, although the executive expected 5%.

The “austerity budget” attacked with much fanfare by the left and conceived by the administration as a first step toward overcoming over-indebtedness is thus highly likely to penalize economic activity.

Even the unemployment rate faces effects, particularly the cessation of the reduction in certain social contributions made by employers. Political instability, and the likelihood of the government being deposed in the coming weeks during the budget examination, heighten the uncertainty.