Collapse of France’s Government Further Burdens Its Weak Economy

Business|Collapse of France’s Government Further Burdens Its Weak Economy

As France prepared for deepening political turmoil after a parliamentary vote on Wednesday that toppled the government, one thing was clear: The paralysis risked unleashing a fresh wave of distress across one of Europe’s biggest economies.

Business leaders, who had been grappling with uncertainty for months, say they are bracing for a hit to growth. Unions warn of widening layoffs. Thousands of civil servants, including teachers, hospital staff, airport employees and workers in the gas and electricity sectors, are planing street protests across the country for Thursday.

France’s economy was already in a rough patch when a deeply divided Parliament backed a vote of no-confidence in Prime Minister Michel Barnier, ousting him and his cabinet and leaving the country without a functioning government or a budget for next year to rein in France’s troubled finances.

Mr. Barnier is likely to remain as a caretaker until President Emmanuel Macron appoints a new prime minister, and France will use the 2024 budget until a new one can be assembled. In the meantime, the government’s collapse “will make everything more serious and more difficult” for France, he said in a speech to Parliament before the vote.

“At a time when economic growth in France is slowing markedly, this is bad news,” said Charlotte de Montpellier, the chief economist for France at ING bank.

High energy costs and interest rates, a downturn in domestic industry, falling consumer confidence and a slowdown in business investment have left growth largely flat for the last two years. Political instability since Mr. Macron dissolved Parliament in the summer and held snap elections that led to a more deeply fractured legislature caused businesses to further pause investment and hiring.