European Economics: France – Will the economy remain ‘underpressurised‘?

Research evidence excerpt

European Economics: France – Will the economy remain ‘underpressurised‘?

European Economics

19 June 2026 Citi Research

conditions are of course very similar in their symptoms and they are also hardly

mutually exclusive; within the constraints of a currency union, internal devaluation,

a rebalancing of the economy via lower wage and price inflation compared to the

rest of the world, can be both the consequence of and the remedy to a cyclical

downturn. Yet the causality can run the other way too, with internal devaluation an

intentional policy result where transitory (though very possibly long-lived)

domestic demand weakness is at least an accepted side effect, and indeed to some

extent a means to an end. At this point, trying to differentiate between a simple

cyclical slump and demand weakness brought on as part of an internal devaluation

effort can seem like an academic exercise, but we think the two conditions can

unfold in different manners that have implications for investors and stakeholders in

the French economy more broadly.

The post-pandemic demand slump appears to owe much to household

deleveraging. France is of course not the only country to have seen a reduction in

household debt as a share of GDP over the time period. The reduction was if

anything more pronounced in the rest of the Euro Area, but this measure is to an

extent endogenous to the weak inflation and demand pressures we are aiming to

get to the root of in this note: nominal GDP grew by 16.7% in France between 2019

and 2025 compared to 24.9% in the rest of the Euro Area. When expressed as a

flow relative to GDP, the extent of the slowdown in fresh household credit becomes

more clearly visible: annual household credit flow averaged 2.4% a year between

2013 and 2019, but only 0.4% in 2023-25.