French Economy Shrinks As Political Crisis Eclipses Olympic Boost

The French economy grew 1.1 percent in 2024 but shrank in the fourth quarter as a political crisis gripped the country after a boost from the Paris Olympic Games, official data showed Thursday.

The eurozone's second biggest economy performed worse than expected in the fourth quarter as it contracted by 0.1 percent, figures from the INSEE statistics institute showed.

The institute had expected the economy to post zero growth in the October-to-December period after growing by 0.4 percent in the third quarter, which includes the summer months of the Olympic games.

"There was a significant post-Olympics pullback," Maxime Darmet, an economist at insurer Allianz, told AFP.

"Despite some resilience, business investment remains weak. Without the political crisis, we might have expected a stronger recovery given lower European Central Bank interest rates and a slight easing in credit conditions," Darmet added.

The economic downturn coincided with a period of political turmoil as Michel Barnier resigned as prime minister in December after his minority government failed to win support for an austerity budget to shore up the country's shaky finances.

His successor, Francois Bayrou, is promising to bring the public deficit down to 5.4 percent of gross domestic product this year, with the goal of getting back under the European Union's three-percent limit in 2029.

Household consumption slowed in the fourth quarter, growing by 0.4 percent, while investments retreated slightly.

The full-year GDP growth was in line with the 1.1 percent forecast by INSEE and the French government.

France's downturn is further bad news for the eurozone as its top economy, Germany, has been slumping.

GDP data for the eurozone and Germany will be released later on Thursday.

Bayrou's government has lowered the 2025 growth forecast from 1.1 percent to 0.9 percent.

Germany has also been roiled by political upheaval as Chancellor Olaf Scholz's coalition government collapsed late last year, setting the stage for elections next month.

US President Donald Trump's trade tariff threats have added to worries about Europe's economic performance.

"Domestic uncertainties, coupled with sluggish growth among (France's) main trading partners, do not inspire confidence for the coming quarters," said Sylvain Bersinger, an economist at Asteres, in a research note.

"The threat of a trade war with the United States also poses a downside risk to forecasts," he added.