France is currently grappling with a deepening economic imbalance marked by what analysts call a “double deficit” — a simultaneous widening of the trade deficit and a persistent public spending shortfall. In February 2025, the trade deficit surged to EUR 7.9 billion, the highest since September of the previous year. This marked a sharp increase from EUR 6.5 billion in January and far exceeded market expectations of EUR 5.4 billion. The widening gap was mainly driven by a 2.4% rise in imports, especially in areas such as publishing and communication products, transport equipment, and natural hydrocarbons.
At the same time, France’s government is running a fiscal deficit projected at 5.25% of GDP in 2024 and 5% in 2025. This persistent overspending has significant implications, particularly in a climate of rising global interest rates and uncertain investor sentiment.
The trade deficit indicates that France is spending far more on imported goods than it earns from exports. This imbalance drains capital from the country and puts pressure on the euro, as more euros are converted into foreign currencies to pay for imports. The weaker euro then makes foreign goods more expensive, which can fuel domestic inflation and increase the cost of living for households.
The public deficit, meanwhile, highlights the gap between government revenue and expenditure. Financing such a deficit often requires borrowing, which can drive up national debt and lead to increased interest payments. If investors begin to doubt France’s ability to manage its debt, borrowing costs could rise even further, compounding fiscal pressures.
Unlike countries with independent currencies, France, as part of the eurozone, cannot devalue its currency to make exports more competitive. This limits its tools for adjusting to economic imbalances and increases reliance on structural reforms or internal adjustments.
To navigate these dual challenges, France may need to adopt a combination of measures. Boosting exports through support for innovation and manufacturing could help narrow the trade gap. Reducing imports by strengthening domestic production may also help, though EU trade rules make this approach complicated. On the fiscal side, the government could consider targeted spending cuts or tax reforms to reduce the budget deficit, though such moves may face political resistance.
There are potential risks if these deficits remain unaddressed. Investor confidence could wane, leading to credit rating downgrades and higher financing costs. Inflationary pressures from a weaker euro could reduce real incomes and dampen consumer demand. Furthermore, pressure from EU institutions might force France to adopt stricter fiscal policies, potentially slowing growth even more.
Still, with thoughtful policy responses, including structural reforms and better resource allocation, France has the opportunity to correct its course. By enhancing competitiveness, reducing unnecessary expenditures, and fostering economic resilience, the country can address these deficits and move toward a more stable and sustainable future.