Published on •Updated
While the economies of its main European neighbours continue to grow, France is an exception.The government has cut its growth forecast for 2026 to 0.5%, from 0.7% previously, and now expects growth of 1% in 2027, economy minister Roland Lescure said on Friday. The government is also projecting inflation of 2.1% this year and 1.8% next year.
This downward revision makes the government’s budget equation more complicated. Weaker growth is likely to weigh more heavily on the public finances, even though the government had set itself the goal of bringing the deficit down to 5% of GDP in 2026, from 5.1% in 2025. Prime Minister Sébastien Lecornu had already admitted he was not “very optimistic” about hitting that target.
The new forecasts come a day after even more pessimistic projections from Insee. The statistics office has lowered its forecast for 2026 growth from 0.7% to 0.4%, warning that the French economy is “losing ground”.
After a start to the year marked by a 0.2% decline in GDP in the first quarter, followed by flat activity in the second, the situation contrasts sharply with that of the main neighbouring economies. Over the first two quarters, Germany posted growth of 0.4% and then 0.3%, Italy 0.3% and then 0.2%, and Spain 0.6% and then 0.7%. The United Kingdom grew by 0.6% and then 0.4%.
The engines of the French economy “stalled”
According to Insee, “all the engines of domestic demand” are “stalled”. Household consumption remains weak and investment is falling, hit by a slowdown in public projects linked to the municipal electoral cycle.
The institute also highlights the impact of heatwaves, which are particularly severe for agriculture. For its part, the government estimates that, if nothing is done, climate change could shave 3.6% off French GDP by 2050.
Insee also reports that the labour market is “more degraded than elsewhere in Europe”, with rising unemployment and sluggish wage growth.
The deterioration in the public finances is also limiting budgetary support for the economy.
Activity is nonetheless expected to pick up slightly in the second half of the year. Insee is forecasting growth of 0.1% in the third quarter and 0.2% in the fourth. For the year as a whole, however, the expansion of the French economy would remain roughly three times weaker than that of its neighbours in the eurozone and the United Kingdom.
Rising inflation, falling purchasing power
Another piece of bad news for households is that inflation is expected to keep rising, reaching 2.9% at the end of the year, compared with 2.4% in August.
In this context, purchasing power is set to fall by 0.4% over the year as a whole, due in particular to the decline in paid employment and rising prices. “A large share of households” is likely to be affected, according to Insee.
Household consumption, traditionally a key driver of the French economy, would therefore grow by only 0.3% in 2026. Households are also expected to dip further into their savings, with the savings rate falling from 17.8% of gross income in 2025 to 17.3% this year.
Business investment, for its part, would fall by 0.3%, while household investment would drop by 1.3%.
Insee nevertheless stresses that “some uncertainties remain”, notably regarding the impact of heatwaves on activity in the third quarter and developments in the situation in the Middle East.
Additional sources • AFP