China: growth is a “positive surprise” but serious questions remain
China has released fourth-quarter and full-year 2024 growth figures and announced that its 5% target has been met. The consensus of economists, who were not expecting such a performance, found these numbers – even thought they were positive – “surprising ”1. While China achieving its growth target is nothing new, the slowdown in a number of sectors (e.g. real estate and consumer goods) and the deflationary trend in the economy suggest that the reported growth number may be overstated. Worries over the strength and, above all, the sustainability of China’s economic model have not faded. There is also growing doubt about the transparency and credibility of China’s statistical machinery. Lastly, 2025 will necessarily be affected by changes in the US-China relationship, which is currently the leading driver of uncertainty.
The first “surprise” was industrial production, up 6.2% in December after increasing by 5.4% in November, and in particular manufacturing production, buoyed by solar panels, the transport sector (notably cars and spares) and household goods. It seems that, in anticipation of the first tariff hikes and restrictions on free trade more generally, US firms have built up significant inventories, leading to a 16% surge in Chinese exports to the US in December. Foreign trade thus boosted industrial production and made a positive contribution to 2024 growth, adding 1.5 percentage points (pp) – a level not seen (excluding the post-pandemic recovery of 2021) since 2006. China’s trade surplus reached an all-time high of nearly $1 trillion in 2024, by far the largest surplus ever recorded by any country.
On releasing this fourth-quarter and full-year 2024 data, the Chinese authorities also took the opportunity to point out that their monetary and fiscal support efforts were beginning to bear fruit. It is important to acknowledge that the government responded to the slowdown in growth in the first half of the year with a slew of announcements to revive consumer and investor confidence. In December, the last meeting of the Politburo concluded with the authorities committing to implement “more proactive” fiscal policy and “sufficiently accommodative” monetary policy. This very unusual language reflects a genuine change in tone on the part of the authorities and a recognition of the existence of structural factors holding back the economy, starting with weak consumer spending. This press release has yet to be translated into any new stimulus measures, which are more likely to be unveiled during the parliamentary sessions in early March.
The authorities had already announced a 10 trillion yuan plan (around $1.4 trillion) in early November to help get local governments back on an even keel. On top of this, a programme of consumer subsidies was widened to cover more products including not only televisions, phones and tablets but also household goods (microwave ovens, dishwashers and rice cookers), in addition to programmes aimed at vehicles (combustion engine or electric), pay rises for civil servants and monetary policy easing (interest rates, reserve requirement ratio and mortgage rates). Ultimately, the scale of the support package, which equates to around 10% of Chinese GDP (albeit spread over three years), almost seems out of proportion to China’s apparent growth trajectory: while growth was indeed below the 5% target at the point when the authorities unveiled their package in the third quarter of 2024, it was not far off. Even during Covid, when official growth slowed much more sharply (coming in at 2.3% in 2020), the government did not provide the economy with such strong support.
Reading China’s statistics leaves one with the impression that the model does not completely add up. How does one reconcile this 5% growth and its breakdown (with consumer spending adding 2.2 pp, investment 1.3 pp and foreign trade 1.5 pp) with the more negative signals sent by other economic data points? And, above all, why are the authorities working so hard to support what looks like to be an already high level of growth? Three inconsistencies can be identified, the first of which is detailed here; the other two can be found in the full version of this analysis.
The first inconsistency is the mismatch between growth and inflation. Every year, the authorities announce an inflation target – usually 3% – at the same time as the growth target. Yet, while the growth target is met every year, this inflation target has been met just five times since 2000. In reality, if one were to delve into the annals of economic history, it would be hard to find any country without a fixed exchange rate regime that has known such strong and stable growth as China since 2000, without that growth fuelling higher inflation. One can take the view that the Chinese authorities want inflation to remain low because they want the economy to be price-competitive above all else. The reason inflation is so low lies in wage restraint by Chinese firms – both public and private – and the existence of a huge pool of labour fed by the rural population and migrant workers. It is kept low by high levels of competition within the economy, particularly in the private sector, which also drives prices down, since firms tend to be price-takers rather than price-makers in markets. Lastly, China’s interventionist government can control price trends, notably through the existence of strategic inventories and reserves (of metals, oil and agricultural products).
However, since 2020, low inflation has appeared to be something the Chinese authorities have been forced to put up with rather than something they have opted to maintain. It reflects the lack of domestic demand seen in household consumption numbers. There are a number of factors explaining consumer behaviour. First off, Covid hit the labour market a lot harder than official unemployment statistics suggest, with 47 million jobs destroyed during the pandemic; youth unemployment in particular highlights just how difficult it is for the labour market to absorb even the most highly qualified new entrants. The state of the labour market, the scars left by the zero-Covid policy and, of course, the situation in the real estate sector triggered a crisis of confidence among households, altering consumers’ trade-offs between spending and saving. The result was an interruption in the very slow shift in the balance between consumption and investment – a shift that is necessary if China is to successfully transition to a growth model driven by domestic demand rather than foreign trade and investment. The severe real estate crisis, from which China is still struggling to emerge three years after it began, is thus fuelling deflationary pressures in two ways.
And, while Chinese firms could always count on strong external demand to soak up excess production they were unable to sell in the domestic market, it looks like 2025 will raise many questions about the kind of trading environment with which China will now have to contend.
For China, the return of Donald Trump is a potential source of much instability. This could be both a threat and an opportunity. The threat is mainly in the economic arena. Hiking import tariffs on Chinese goods was one of Trump’s campaign promises. And while the Republican line, embodied in particular by the new Secretary of State Marco Rubio, is harder than the Democrat line, growing protectionism with regard to China is one of a small number of issues to enjoy bipartisan support. This means Trump could have Congress’s full backing for his measures, which could take various forms: higher import tariffs – initially an extra 10% but eventually as high as 60% if Trump sticks to his guns; continued restrictions on exports of high value-added technology products; and sanctions on Chinese firms. China expects and is readying itself for these announcements, and for the US’s stance to harden. It knows it must look beyond the “golden age” of globalisation, from which it had benefited so handsomely since joining the WTO in 2001, though this has not stopped the authorities making various attempts to offer the new administration an outstretched hand. Vice President Han Zheng attended Trump’s inauguration and has had many meetings with the new team tasked with overseeing trading relationships and the US-China business community.
Ever since 2018, the authorities have been preparing to “decouple”, notably through a strategy of “dual circulation” aimed at limiting China’s reliance on imports while supporting exporters. These preparations have taken various forms. Chinese firms have already relocated parts of their value chain to third countries, chiefly Mexico and Vietnam. The US increasingly sees these countries as back doors for Chinese goods, which means they in turn could come under pressure to reduce their exposure to China on pain of facing additional restrictions or import tariffs that would directly affect Chinese firms benefiting from the system.
Decoupling has also translated into huge investment in sectors in which China is behind the curve technologically speaking, and in which the US would like to keep China at bay by controlling the exports of US firms (as well as, if it can, firms from other countries) in strategic sectors such as artificial intelligence, semiconductors, aerospace and military hardware. It is hard to know with any certainty how much progress China has made in catching up in these areas. It still appears to be heavily dependent on imports of huge volumes of the most advanced integrated circuits and semiconductors from Taiwan and South Korea. However, the unveiling of DeepSeek, a Chinese chatbot developed – according to the official narrative – with reduced resources and minimal investment, shows that China is far from being left behind and continues to pursue its goal of achieving strategic autonomy.
The main opportunity lies in the geopolitical arena, where the America’s radical, imperialist positions (on Greenland, Panama and Gaza) and its withdrawal from the multilateral (the Paris Agreement, the WHO, the Human Rights Council) and bilateral (dismantling of USAID) architecture could be an opening for China to assert its will. Indeed, the empty space left by the United States could leave China as the leading contributor to some institutions, starting with the WHO, giving it more of a say in the management of these multilateral structures that do so much to propagate standards and ideas. More than ever before, China is also likely to position itself as a protector of the Global South, which is still disorganised and not completely aligned with China’s stance but which US actions against free trade and international aid, on which many countries depend, could help unite.
As we have seen, China has stated its willingness to negotiate. This is not incompatible with its latest statements and measures adopted in response to US tariff hikes. A “super deal” in which Trump emerges as the winner is not impossible. It remains to be seen, of course, how much China might be willing to put on the table – and, conversely, how it might react if trade tensions escalate2.
It is a weakened China that now faces a provocative and combative Donald Trump. Covid-19 left profound scars on the Chinese economy and society, with the real estate crisis, the crisis of confidence among households, manifested by the failure of domestic demand to pick up, and huge levels of sometimes ineffective local government debt revealing the limits of China’s fiscal system. In reality, the country’s entire economic system seems to have passed its peak, revealing some hard-to-conceal inconsistencies. Meanwhile, the Chinese manufacturing complex is triumphant, enjoying the luxury of historic surpluses. This is not such a paradox: China is scouring the rest of the world for the consumers it lacks at home. With protectionism back on the agenda, led by the US, this is a dangerous game – but one that most countries which no longer benefit from the status quo, and which understand that cheaper Chinese products do not replace jobs or industrial activity, are now playing.
In this emerging new world, China can still wield great power, but to do so will require swift and radical reforms to address structural issues specific to the Chinese model: land distribution, free movement of domestic workers and development of safety nets (without falling into the kind of dependency that Xi Jinping so detests) supported by a tax system that allows for a little more redistribution in a country where inequality has skyrocketed. Above all, China will need to inject fresh confidence into disenchanted households who see the social contract – at the heart of the regime – as being increasingly neglected.
This analysis is an abridged version of a study that can be found in full here (only available in French).
Everything is now related…
Northeastern Congo has long been one of those “symptom regions”, out of the world news spotlights but very revealing of the word geoeconomic dynamics: local tensions intersect with the global race towards controlling resources, with violent results. Tantalum, tungsten, tin and gold have long been classed as “conflict minerals”1. But they are an even greater source of conflict now that everyone knows the climate and technology transitions are impossible without them. Simply put, they are the foundation stone of promises of growth, and therefore a major political priority: according to Guillaume Stechmann, we are now in the era of “metalpolitik”2. As for those countries that compete to become technological superpowers, their dreams will not be fulfilled unless and until they can secure their supplies of metals. China understood this before anyone else3. The geopolitics of value chains is the geopolitics of resources. For the mining Eldorado that is Africa4, this is a vital and urgent issue. There is a need to increase investment (which is disproportionately low relative to the amount of resources), move up the processing chain, retain value and invest it in economic diversification: In short, breaking out the classical Dutch Desease, which has prevented oil revenue from being used to further regional development.
Escalating violence in North-Kivu (the Congo accounts for 42% of the global production of tantalum, with the Rubaya mine alone accounting for 15%5) is no accident: the accelerating race for critical metals is being aided by a unique combination of global geopolitical fragmentation, intensifying global warming and accelerating technological development. Everything points to growing demand for certain metals (according to the International Energy Agency, demand for copper is set to grow by 40% over the next 15 years6), which also increases the risk of supply shortages7, especially given that the increasing miniaturisation of products is not reducing demand but boosting it. According to Guillaume Pitron8, a smartphone might only weigh 150 grammes but requires 150 kg of rock to be treated with water which, as mining and geological engineer Aurore Stephant reminds us, is also one of the victims of the race for metals: miles-long stretches of the Congo River are already contaminated with heavy metals. All of which raises the question of how much a resource truly costs once you factor in negative externalities…
At an even deeper level, what is really at stake behind our addiction to metals is the acceleration principle itself. This principle is held up as the fundamental driving force behind what philosophers and sociologists call late modernity. Hartmut Rosa in particular describes western societies as being characterised by a phenomenon of acceleration that has spread to every area, from fast food to speed dating, from power naps to high-speed computing and from rapid transport to instant communication. In fact, we are moulded by a “desire or felt need to do more in less time”9, accompanied by a fear of not being able to keep up. We must “dance faster and faster just to stand still”10. Rosa talks about the “time-famine” of modern society11. Economics, science and geopolitics are all driven by changes in our collective mindset: the digital revolution is also the culmination of a historical process that pushes us to cram more and more experiences into a given period of time.
Lastly, western societies are also worried about the risk of shortages: unlike during the golden age of globalisation, the world is anxious about resources that are seen as being finite. This worldview bears a distinct resemblance to that of the seventeenth-century mercantilists, who measured power based on the size of trade surpluses, as well as gold and silver mines, and who understood the world as a zero-sum game (“What you have, I cannot have”). The West has now taken a mercantilist turn: welcome to the world of Colbert. In many regions, resource war is becoming the decisive factor shaping the long-term economic, social and political future. While this is patently true in Africa, nickel is also causing disruption in Indonesia, lithium in Chile and Serbia, and so on… not forgetting Greenland, of course!
All over the world, new income streams are intersecting old ones, redefining trade, investment and logistics corridors. The United States is reinvesting in the Lobito Corridor, along which African copper travels to the Atlantic Ocean12, while China, which reportedly controls 74% of Congo’s cobalt, is securing the route to the Indian Ocean. The Gulf States are also stepping up their investment in mining and Dubai Port World is investing in ports. Behind the battle for metals lies a battle for the oceans. And, once countries in the Global South start to renegotiate how revenue is shared, it would be no surprise if new cartels were to emerge. In the meantime, governments want to control resources and develop in-country refining capability13. More and more countries are banning exports of raw products each year, the best example being Indonesian nickel14, where the government controls the entire sector. The issue of price control is also on the table: watch out for OPEC-style groups seeking to control the price of copper or nickel. It remains to be seen how the global economic balance of power between producers and major multinational corporations will shift, particularly in Africa.
The icing on the cake, so to speak, is Trump and his territorial claims, which are throwing the geopolitical Pandora’s box wide open. Ultimately, though, Trump is merely further bolstering a mental shift that has been evident since the war in Ukraine began: many leaders are convinced that, “when all is said and done, force creates law”15. It’s important to point out that this quote from Achille Mbembe16 is addressed not to Russia, China, Azerbaijan or the United States… but to putschist regimes in West Africa. In our mental maps, is the entire world now the Wild West? While this is admittedly not a new question, these open appeals to force mean it is now imperative to know what values we want to protect.
Remember what Rousseau wrote: “The strongest is never strong enough to be master all the time, unless he transforms his power into right and obedience into duty”17. Particularly in Europe, if we are to continue developing our sovereignty in critical metals, it is more important than ever that we not disregard their local consequences. This raises questions about a memorandum of understanding signed by the European Union and Rwanda in 2024 covering supplies of coltan whose origin is disputed by Congo. It also calls into question the granting of $20 million in aid, also to Rwanda, at the end of 2024 to provide a peacekeeping force in Mozambique18, on the basis of now disputed clauses. It will be increasingly important to be wary of simplistic reductions of “metalpolitik” in the face of local situations that are undergoing fundamental change.
This is particularly true of an Africa on the brink of a “historical new political cycle”19 in which demographic, sociocultural, economic and political issues are interwoven in a “perilous and unprecedented self-calibrating movement”: an Africa fortified by “the continent’s technological awakening, the growing influence of diasporas, the accelerating process of artistic and cultural creativity, increasing mobility and traffic, and the frenzied search for alternative development models rooted in local traditions”. However, by unleashing the forces of self-interest, Donald Trump is also paving the way for actors who have no compunction about getting into conflicts and who are greedy for revenue to spring into action. Geopolitical opportunism is what you get when a hegemon is incapable of regulating the international situation – especially when the hegemon himself behaves like a pirate.
The current geopolitical environment thus encourages actors to act in ways that might disrupt many strategic areas, particularly in politically sensitive regions. For example, the Kivu region has long been a hotbed of ongoing rivalry between Tutsis and Hutus where the state’s authority is weak. Rwanda would like it to become a buffer against Congo. It’s also a crucial region for the stability of Uganda, where President Museveni is trying to maintain his popularity in a country where 70% of the population is under 30 years old – but where his capital, Kampala, is also trying to protect exports to Congo and co-financed infrastructure projects.
Ultimately, for both Uganda and Rwanda, mineral wealth is a game changer that is incentivising actors to put their threats into action. Unfortunately, all of this fuels the tired old bogeyman of extractivism; Achille Mbembe warns in his book that this principle of “brutalism”20 could be the world’s future. “The function of contemporary powers is therefore, more than ever, to make extraction possible21. The drilling of bodies and minds is part of it”, writes Mbembe, “[…] as the state of exception becomes the norm and the state of emergency, permanent”22. “The age”, he goes on, “is truly one of the forge and the hammer, ember and anvil, the blacksmith being perhaps the last avatar of the great historical subjects”.
France – 2025-2026 Scenario
Economic activity in France quickened in Q3 2024, with quarterly growth coming in at 0.4%, compared with 0.2% in Q1 and Q2. This uptick is explained by the Paris Olympic and Paralympic Games, estimated to have added 0.2 percentage points to Q3 growth. At the end of Q3, carry-over growth for 2024 was 1.1%.
The economy is not expected to have grown at all in Q4 2024 due to the boost from the Paris Olympics washing out. This would put full-year 2024 growth at 1.1%, unchanged year on year, mainly driven by foreign trade and public spending, with private domestic demand (excluding inventories) stagnating. Average annual CPI inflation eased from 4.9% in 2023 to 2% in 2024. In 2025, growth is predicted to slow to 0.8% and inflation to 1.1%, with prevailing high levels of uncertainty hampering growth: household consumption is set to grow but by less than originally expected, with the recovery in private investment pushed back to 2026. Growth should then pick up in 2026 – assuming political instability eases – to 1.1%, the level of potential growth. However, the output gap will still be negative at the end of 2026. Inflation is set to pick up slightly, to 1.3%.
This scenario is compatible with the adoption of a 2025 Budget Bill in the early part of the year (probably at the end of Q1), with the public deficit shrinking by less than would have been the case under a Barnier budget to reach 6% of GDP in 2025, compared with 6.2% in 2024. It will probably fall to around 5.5% of GDP in 2026.
Slowing growth is making trade-offs more complicated in India
The rapid slowdown in India’s growth, set to fall from 8.2% to 6.4% – at best – for fiscal year 2024/2025 (compared with an original target of 7%), is making the government’s trade-offs more complicated. India is still the regional champion when it comes to growth and is leading the race, with China slowing. But the pace of growth in India, not content to undershoot the authorities’ expectations, is still well short of the level required to create the 12 million jobs needed to absorb new entrants into the labour market, the structural Achilles’ heel of the Indian economy. After coming in at 7.8% in the first quarter and 6.7% in the second, growth slowed still further to 5.4% in the third quarter, its lowest for three years, even with base effects left over from Covid still in full effect.
The answer lies in inflation, which is extremely volatile in India. Driven by food prices, it has been oscillating between 5% and 6% for the past few months. Prices are putting pressure on wages, which are stagnating or even falling slightly, and thereby on household consumption, the traditional driver of India’s growth. Against this backdrop, the lack of momentum in the labour market is not helping: employees are not in a strong position to negotiate pay rises in what is also still a highly informal environment.
The decline in consumption – of durable goods (cars, motorbikes and household goods) in particular – is directly affecting major Indian groups. Still relatively uncompetitive in export markets, in a country that remains very protectionist and has not entered into many free trade agreements, large Indian companies are mainly reliant on the huge domestic market to absorb what they produce. The contribution of net imports to growth has swung back into positive territory, signalling a sharp slowdown in imports, even as prices have risen sharply as a result of the weak rupee. These various factors all reflect sluggish domestic demand.
In reality, the Indian economy is beset by far-reaching questions, notably over its ability to fuel the emergence of a true middle class that could drive endogenous growth, underpinned by the convergence – slow but at least linear – of annual incomes. These questions, combined with persistent inflation and relatively pessimistic expectations, also explain the slowdown in private investment and foreign direct investment, which fell to a record low of $28 billion in 2023.
Inflation is also being fuelled by the fall in the value of the rupee, which is currently depreciating unusually sharply. Given India’s structural current account deficit, downward pressure on its currency is nothing new and tends to complicate monetary policy decisions, which must always strike a balance between controlling inflation, managing the exchange rate and supporting economic activity.
The task facing the new Governor of the Reserve Bank of India (RBI) – Sanjay Malhotra, appointed last December – looks set to be a complex one. A former secretary for revenue at India’s Ministry of Finance, Malhotra was chosen for the line he defends: clearer support for growth, which means more accommodative monetary policy, to make up for tighter fiscal discipline.
Although the RBI has, for the time being, kept interest rates unchanged at 6.5%, an initial cut could follow its next monetary policy meeting in February, even if that means sacrificing the rupee by using accumulated currency reserves to defend it if necessary, as it has already been doing over the past few months – reserves fell from $616 billion in September to $534 billion in January. The exchange rate is therefore likely to fall below 90 rupees to the dollar in the next few months, equating to depreciation of around 30% from its pre-pandemic level.
This happens to also be the line defended by Narendra Modi and his team, who are lobbying the RBI to provide more support to the domestic economy. Even before the committee meets, the RBI has already announced fresh injections of liquidity into the interbank market.
Another looming debate is over the budget, the examination of which is due to begin in February. After rising during election year, public spending has slowed sharply, with the government still pursuing fiscal consolidation. Finance Minister Nirmala Sithamaran is set to announce new tax cuts (corporate tax was already cut during Modi’s second term) and infrastructure spending.
The central government budget deficit should fall back below 5% of GDP before the end of the fiscal year (the consolidated deficit is still in excess of 8% of GDP), but this consolidation is also explained by the difficulty of implementing the budget: some projects are falling behind and the quality of infrastructure already built is questionable, all of which is delaying the start of other projects.
Narendra Modi’s image as a development-oriented prime minister, already dented by his poor performance in the June 2024 elections and the loss of his parliamentary majority, continues to fade even as the Bharatiya Janata Party (BJP) faces fresh elections this year, notably in Delhi and the state of Bihar.
Lastly, like the rest of the world, India looks on at the United States with fear. The US is its number one customer by far, absorbing around 18% of its total exports. Over the first ten months of the year, India generated a trade surplus of around $35 billion with the US. This is not enough to put India atop Donald Trump’s list of targets – first there is China, of course, but also Canada, Mexico, South Korea and Vietnam – but it is enough to raise concerns about potential restrictions on international trade.
Donald Trump and Narendra Modi have already spoken by telephone, and the Indian prime minister might make an official visit to Washington as early as February to discuss his concerns and priorities: import tariffs, of course, but also visas for Indian workers as America tightens the screws on its migration policy. Meanwhile, the US president has suggested that his Indian counterpart buy more American weapons. This “advice” feels like a threat, hinting at future negotiations in which India, still hopeful of positioning itself as an industrial alternative to China, will have much at stake.
Germany – 2025-2026 Scenario
The downward revision of our forecasts for the German economy is in line with the preliminary estimate of a 0.2% contraction in GDP in 2024. Activity in the first three quarters of 2024 was supported in particular by public consumption, despite limited budgetary resources. Household consumption, on the other hand, weighed on growth. Households switched to savings because of low consumer confidence in a context of mediocre economic performance, and because purchasing power gains were still too timid. The rise in investment in other products would not be enough to offset the collapse in construction investment and the fall in productive investment. Gross fixed capital formation is likely to continue to be penalised by the long lag in the pass-through of past interest rate rises and by the deterioration in Germany's industrial sector. Net exports are expected to continue to contract, due to a fall in exports and an increase in imports. Inflation continues to slow, albeit at a slower pace, averaging 2.5% in 2024.
Economic activity in 2025 would be underpinned by public consumption and, to a lesser extent, by a slight increase in household consumption. We forecast a very slight recovery in GDP to 0.2% in 2025. We expect activity to accelerate in the second half of 2025, taking GDP to 0.8% in 2026, slightly above the economy's potential, but clearly below the growth seen over the last decade. The disinflationary process would continue, with inflation averaging 2.1% in 2025 and stabilising at 2% in 2026.
The deterioration in the economic and financial situation of companies was limited, which helped to keep the unemployment rate at very low levels. Nevertheless, the manufacturing industry has been negatively affected by the new context of higher energy prices. Besides energy prices, there are other structural challenges linked to labour shortages and the transformation of production, leading to uncertainty about the medium-term economic outlook.
Italy – 2025-2026 Scenario
2025 is expected to be the third consecutive year of weak growth since the strong post-Covid recovery. Although the effects of the inflationary shock are starting to dissipate, with inflation under control, a more expansionary monetary policy and an upturn in household consumption, headwinds are likely to continue to penalise activity, with GDP expected to rise by only 0.6% after 0.5% in 2024. With domestic demand strengthening, the uncertain international environment continues to undermine confidence.
The war in Ukraine and tensions in the Middle East continue to fuel geopolitical pressures, while the US tariff policy, with increased import taxes also affecting Europe, will impact global trade flows. In Italy, exports remain fragile, affected by high energy costs and sluggish demand in key sectors such as metals and automotive, which should continue to impact an industrial cycle that is just showing signs of stabilisation. At the same time, investments, although benefiting from monetary easing, will remain held back by still high interest rates, altered demand prospects and a construction sector that will have to cope with the setback of the Superbonus.
Despite these constraints, public finances are beginning to consolidate, with a projected deficit of 3.3% of GDP, underpinned by budgetary discipline in line with the new European rules.
Eurozone –2025-2026 Scenario
Facing the relative slowdown in the US economy, growth in the Eurozone accelerated slightly over the summer, although still at a much lower rate than in the United States (0.9% year-on-year).
The upturn in household consumption seen over the summer bodes well for slightly stronger growth next year. The latest information on investment does not plead in favour of a marked acceleration. We have revised our investment forecast downwards and postponed its recovery until 2026.
Our GDP growth forecasts for 2024 and 2025 have therefore been reduced (from 0.8% to 0.7% and from 1.3% to 1% respectively). In 2026, GDP growth should return to its potential rate of 1.2%, but the slightly negative output gap will not yet have been closed.
This pace would not be enough to halt a further widening of the growth gap with the US economy, fuelled by a growing divergence in economic policies. The Trump administration's policies should have a moderately negative impact on growth in the Eurozone.