Brussels: On Wednesday, the Organisation for Economic Cooperation and Development (OECD) revised its economic growth projections for Germany and France downward.
The Paris-based organization, which provides policy advice to developed nations, now anticipates that the German economy will grow by 0.7% next year, a decrease from its earlier estimate of 1.1%.
Similarly, France's growth forecast has been reduced by 0.3 percentage points, with the OECD now predicting a 0.9% expansion for the French economy.
What did the OECD indicate regarding the German economy?
Germany and France, the leading economies in the EU, have faced numerous challenges over the past year, including political disputes, elevated energy costs, insufficient investment, and declining demand in significant international markets.
Last month, Germany's three-party ruling coalition disintegrated due to conflicts over addressing the country's serious economic issues.
Snap elections are scheduled for February.
Germany's economic growth is expected to fall short of the eurozone average, projected at 1.3% for 2024 and 1.5% for 2025.
Low inflation coupled with increasing wages is expected to bolster real incomes and private consumption, according to the OECD.
The organization noted that private investment is likely to gradually improve, driven by substantial corporate savings and a slow decline in interest rates; however, ongoing policy uncertainty may continue to dampen investor confidence.
In France, Prime Minister Michel Barnier's minority government is at risk of being ousted by a no-confidence vote in parliament on Wednesday, following its push for an unpopular budget bill aimed at reducing the nation's significant budget deficit.
Barnier's initial deficit-reduction strategy included tax hikes and spending cuts totaling €60 billion ($63.1 billion), with the goal of lowering the deficit from an estimated 6.1% of economic output this year to 5% by 2025, and ultimately to 3% by 2029.
This plan was perceived as an effort to stabilize the French economy.
However, should lawmakers decide to remove Barnier's government, it could lead to significant political instability in the country.
The OECD projects that France's economy will grow by only 0.9% in 2025 and 1% in 2026.
Additionally, the organization issued a warning regarding the escalating threat of global trade protectionism, stating that rising trade barriers could hinder the global economy.
This alert comes just weeks before US President-elect Donald Trump is expected to take office, having already pledged to impose tariffs on several trading partners.
The OECD has cautioned that "increased trade protectionism, especially from the largest economies," presents a "downside risk" to global economic growth. Despite this, the organization has revised its 2025 global economic forecast upward to 3.3%, reflecting an increase of 0.1 percentage points.
The OECD emphasized that "the implementation of trade-restrictive measures could lead to higher costs and prices, discourage investment, stifle innovation, and ultimately hinder growth."
A recent analysis conducted by the Roland Berger consultancy estimated that the financial impact of US trade measures, along with potential retaliatory actions from China and the EU, could exceed $2.1 trillion by 2029.
