France's future in 2025 remains uncertain due to the admission by Macron that the snap elections caused instability in the country.

• Despite entering a new year, France faces ongoing political and economic uncertainty that may persist in 2025.
• Despite being a new minority government, the same challenges remain for the French government in agreeing on spending and taxation plans for 2025 with its political rivals in the National Assembly.
• In 2024, France's budget deficit is projected to be 6.1%, while its debt-to-GDP ratio is expected to reach 112%.

The political and economic instability that has been affecting France for months is unlikely to improve in the new year.

Last summer, France experienced a political crisis after President Emmanuel Macron called for snap parliamentary elections, resulting in a inconclusive outcome where both far-left and far-right parties claimed victory.

In the midst of disagreements about leadership, Macron appointed a centrist, conservative government, but this government was short-lived due to conflicts over France's 2025 budget. These disagreements ultimately led to its downfall, with both the far left and far right contributing to its failure in a December confidence vote.

The new minority government in France must tackle the same challenges as before, which include finding a way to convince political opponents in the National Assembly to approve spending and taxation plans for 2025 that will reduce the country's budget deficit, projected to reach 6.1% in 2024, and a debt pile that exceeds 112% of GDP, both of which are above EU guidelines.

The ongoing political crisis in France has caused financial markets to become increasingly volatile and has raised concerns among economists. Moody's recently downgraded France's credit rating, warning that political fragmentation could hinder meaningful fiscal consolidation and that the country's public finances will be significantly weakened in the coming years. Despite most European markets experiencing growth in 2024, France's struggling market fell 2.2% over the year, reflecting the country's political instability.

Macron admits misstep

On Tuesday, Macron admitted that his decision to hold a snap vote last year had caused more problems than solutions for France, despite refusing to resign and holding early presidential elections.

Macron expressed concern about political instability, which is not limited to France, as he mentioned in his New Year address. He cited the recent dissolution of the German Assembly among his friends as an example.

"The dissolution of parliament has resulted in more divisions than solutions for the French in the Assembly," he stated.

"To give you back the floor and regain clarity, I decided to dissolve it. However, I recognize that this decision has resulted in more instability than serenity, and I take full responsibility for that."

Economy has 'difficult winter' ahead

In December, France's National Assembly approved a law to roll over 2024's budget provisions into 2025. However, credit ratings agencies and the Bank of France have warned about the continuing domestic political uncertainty, which has led the central bank to downgrade France's growth outlook for 2025 to 0.9%, from 1.2%.

The new French Prime Minister, Francois Bayrou, acknowledged the immense challenge of resolving France's financial and political issues when he assumed office in December.

Economists and analysts agree.

According to Charlotte de Montpellier, senior economist of France and Switzerland at ING, the French economy is facing a challenging winter, with economic activity predicted to slow down and a recession being a possibility.

Although we may hope for a slight improvement in the political situation, it will not be enough to significantly increase French activity in 2025. As a result, we anticipate GDP growth of 0.6% in 2025, compared to 1.1% in 2024, which is lower than most official institute forecasts. The risks currently facing France are on the downside.

The Brussels-based economics think tank, Bruegel, predicts that the new government will achieve slow advancements.

"The new government faces the same challenge as the previous short-lived government, which is to address the budgetary deficit. However, this task will not be easy, but I believe this government may have a longer lifespan than its predecessor, as stated by the speaker on CNBC's "Squawk Box Europe.""

To comprehend what is happening in France, it is not necessary to use an economic perspective. While there are certainly economic issues that require attention, such as the budget, the primary focus is on the upcoming presidential election. The game being played is centered around this election, and everyone is preparing accordingly. Although the election is scheduled for 2027, some parties are pushing for an earlier date in order to create a crisis and gain more support, while others are trying to buy more time.

"In essence, you could argue that France is ungovernable, which is why I anticipate little advancement on the budget, as the minimum required to pass through parliament."

Early election?

If the new Bayrou government were to fall in a new confidence vote, there could be a rise in calls for Macron to resign.

The political parties have differing opinions on whether an early presidential election would benefit them.

Sapir suggested that an election in 2025 might be more suitable for the far left and far right, as both Jean-Luc Melenchon and Marine Le Pen may have a better chance of winning in an earlier vote.

"The game being played is that many others do not want Le Pen or Melanchon in power, so they will not want to have the election in 2025. This is why 2025 would be an ideal time for Le Pen and Melanchon."