French business warns of recession risk as political turmoil deepens
Fiscal discord alarms company chiefs as PM’s confidence-vote gamble rattles markets
Business leaders in France say the country’s latest bout of political chaos threatens serious economic consequences, lamenting the lack of certainty and of political consensus about how to repair the public finances.
The French government is predicted to fall for the third time in just over a year on September 8, when Prime Minister François Bayrou will face a confidence vote on his plan to tackle the widening deficit.
He called the vote himself last week. However, his move appears to have backfired as opposition parties announced their intention to vote him down. The leader of the centre-left Socialists, Olivier Faure, declared on Friday that his party was ready to govern. “We are done with [threats of] Bayrou or the apocalypse,” said Faure.
Patrick Martin, head of the Medef business lobby, warned of a real “recession risk” in France, adding that the country was already “in a very precarious situation”.
“Order books are drying up, tariffs are [weighing on sentiment] and we’re once again adding a French hazard,” he told journalists at a business conference. “This undeniably poses a new risk to growth.”
The political crisis also spooked financial markets, sending France’s benchmark 10-year borrowing costs above 3.5 per cent last week, close to a post-Eurozone debt crisis high.
Alexandre Bompard, chief executive of food retailer Carrefour, echoed Martin’s concerns. “Only consumption is driving French growth right now,” he said. “Uncertainty is the worst for the consumer . . . The more uncertainty there is, the greater the risk of a strong impact.”
Executives reacted with a mix of exasperation and resignation to the latest turmoil, with many criticising politicians for their failure to tackle the country’s growing debt burden and a deficit that is expected to hit 5.4 per cent of GDP this year.
A senior executive at a Cac 40 company said that while there was an “economic consensus” on the need to address the problems, there remained no “political consensus” on how to do so.
“When there’s uncertainty, people tend to dodge the issue and question their plans,” he said, noting that clients had held back on projects since last year’s snap elections.
“We’ve had instability in government for 18 months,” said Guillaume Borie, head of AXA France, a financial services company. “Business leaders need clarity to be able to plan the necessary investments.”
Bayrou took over in December after Michel Barnier’s government was brought down by a previous no confidence motion. He called the September 8 vote as a way to bolster his mandate and push through a €44bn package of tax rises and spending cuts, in a bid to reduce the deficit in next year’s budget.
But Alexandre Saubot, head of the France Industrie lobby, said the prime minister’s gamble had made already “nightmarish” budget negotiations even worse. “It was a mess before — it’s even more of a mess now,” he said.
Catherine MacGregor, chief executive of energy group Engie, said: “[Businesses need] stability and consistency. I’m sometimes astonished to see the extent to which our elected officials don’t understand how much of a competitive advantage that can represent.”
The upheaval — which could leave President Emmanuel Macron seeking his fifth prime minister since he won a second term in 2022 — comes against a weakening economic backdrop for France and rising pressures from US tariffs.
French real gross domestic output has been falling since the election last year, and output was already expected to drop to 0.6 per cent in 2025, from 1.1 per cent in 2024, according to data from Insee. Unemployment has also risen since the start of 2023.
Meanwhile, the difference between interest rates on the country’s 10-year government bonds and the German equivalent — a measure of market worry about debt — is close to its highest level since 2012.
Bruno Cavalier, chief economist at ODDO BHF, said France risked “lower growth and a larger budget deficit” next year after Bayrou’s decision to call a no-confidence vote.
He is also concerned Macron could be pushed into yet another legislative election as support for a fresh vote gains favour in opinion polls, deepening the political crisis and its knock on effects for the economy.
With the country’s political future and budget negotiations in the balance, the fear among many business leaders is that the uncertainty drags on, or that parliament turns to further tax increases to try to plug the deficit.
“If we add to our burden, growth will be severely affected. Let us grow, invest, innovate, train, hire and export. This is how we will contribute to the recovery,” said Martin at Medef.
Amir Reza-Tofighi, head of the small and medium business lobby CPME, added: “In the short term, political instability plunges CEOs into a fog: how can they invest, recruit or innovate when they do not know what tomorrow will look like?”