French Business Confidence Plummets Amid Political Uncertainty

French businesses are growing increasingly pessimistic about the country’s economic outlook, according to the latest Bank of France survey. Concerns over domestic political instability and geopolitical risks have driven up uncertainty, dampening optimism following a strong third quarter performance fueled by the Paris Olympics, Bloomberg reports.

The survey, which polled 8,500 business leaders across manufacturing, services, and construction, revealed a significant increase in doubts. Business leaders expressed concerns over the new government’s plans for broad spending cuts and tax increases, particularly as the government struggles to secure a parliamentary majority and finalize a budget for next year.

The bleak outlook comes despite a strong third-quarter economic performance, bolstered by the Paris Olympics. The Bank of France slightly revised its underlying growth estimate for the quarter to 0.2%, attributing a 0.25 percentage point boost to the Games.

However, separate private-sector surveys indicate a sharp decline in services and manufacturing activity already began in September, mirroring the business leaders’ anxieties.

The new government, appointed after months of negotiations, faces the daunting task of tackling France’s escalating debt burden. Prime Minister Michel Barnier has stated that drastic measures are necessary to avert a fiscal crisis, with the government proposing €60 billion ($65.9 billion) in savings for next year’s budget. This includes tax increases on corporations and high-income earners.

While acknowledging the need for fiscal repair, French businesses have urged the government to prioritize spending cuts.

Despite the economic gloom, there is some positive news on inflation. The Bank of France notes that the share of services and industrial companies raising prices is returning to pre-Covid levels, indicating a possible stabilization in inflationary pressures.