France lowers growth outlook as trade war bites

PARIS (Reuters) -French Finance Minister Eric Lombard trimmed the government's 2025 growth forecast on Wednesday as a global trade war escalates, but said that the government aimed to stick to its deficit reduction plans.

The euro zone's second-biggest economy is now expected to grow only 0.7% instead of the 0.9% it had based its 2025 budget on, Lombard said on television channel TF1.

Despite the darker economic clouds, Lombard said that the government still aimed to reduce the public sector deficit this year to 5.4% of economic output from 5.8% last year though that would require squeezing extra savings from the budget.

"If the tariffs should stay at the levels they have been announced (by the Trump administration), the United States would suffer the most from that. The impact on France would be moderate," said Lombard.

U.S. President Donald Trump said on Wednesday afternoon he authorized a 90-day pause as part of his tariff plan but was also raising the tariff rate for China to 125%, effective immediately.

Earlier on Wednesday, French budget minister Amelie de Montchalin said that the government was freezing 5 billion euros in public savings to keep the deficit target in reach.

However, Lombard has ruled out deep spending cuts or tax hikes on Friday, cracking open the door to some slippage on the deficit target if the trade war strains the public finances more severely.

Investors and ratings agencies are scrutinising France's public finances after spending spiralled higher last year and tax income fell short of expectations, pushing the budget deficit out to among the biggest in the European Union.

Ratings agency Moody's, which currently has a Aa3 rating on France with a stable outlook, is due to update its view on Friday.

(Reporting by Benoit Van Overstraeten and Leigh Thomas; Editing by Aurora Ellis)