Anemic France and Germany will slow euro-zone down

PARIS: The economies of France and Germany will grow by less than expected this year and next, weighing on the euro-zone’s overall performance, the International Monetary Fund said Tuesday. In its latest World Economic Outlook report, the IMF slashed its forecasts for growth in the euro-zone’s top two economies this year by 0.3 percentage points as high interest rates continue to weigh on the region. It now expects French growth to slow to 0.7 percent this year, from 0.9 percent in 2023. Meanwhile, the German economy should manage only a weak recovery of 0.2 percent, from the 0.3 percent contraction it suffered last year, as “persistently weak consumer sentiment” hobbles its performance, the IMF said.

Both countries will underperform the overall euro-zone, which is expected to see growth accelerate to 0.8 percent this year, from 0.4 percent in 2023. That is a drop of 0.1 points from the IMF’s previous 2024 forecast made in January. “In the euro area, growth will pick up this year, but from very low levels, as the trailing effects of tight monetary policy and past energy costs, as well as planned fiscal consolidation, weigh on activity,” the IMF said in its report. “Stronger household consumption, as the effects of the shock to energy prices subside and a fall in inflation supports growth in real income, is expected to drive the recovery,” it added. It is the third consecutive downgrade by the IMF of its forecast for German growth, and the second for France. As of last October it saw France’s growth picking up steam to 1.3 percent this year. Germany’s lacklustre economic performance has seen it once again labeled by analysts as the “Sick man of Europe”, unheard of since the late 1990s when it was weighed down by the cost of unification.

Increasing competition from Chinese manufacturers, the transition to a green economy and the rise of energy costs following the Russian invasion of Ukraine all weighed heavily on the German economy, BNP Paribas economist Stephane Colliac told AFP. Inflation and high interest rates continue to weigh upon the French economy, as does Germany’s weak recovery, he added. “The geopolitical context is not favorable to growth and confidence,” a source in the French economy ministry said, pointing to attacks by Yemeni rebels on shipping through the Red Sea and the risk of the conflict in the Middle East spreading, as well as the continued fighting in Ukraine. The IMF’s forecast for Germany is now in line with that of the German government. The French government lowered its 2024 growth forecast in January to 1.0 percent, but that is now seen as too optimistic. The French central bank sees 0.8 percent growth, the OECD 0.6 percent, and the European Commission 0.9 percent. The IMF sees the French and German economies continuing to underperform the overall euro-zone in 2025, which is seen as growing by 1.5 percent, a cut of 0.2 points from its previous forecast. It expects the French economy to pick up the pace to a 1.4 percent expansion, with German growth accelerating to 1.3 percent, a cut in 0.3 points for both.