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While the economies of its main European neighbours continue to grow, France stands out as an exception.After a start to the year marked by a 0.2% fall in its GDP in the first quarter and then flat activity in the second, the French economy is “slipping behind”, Insee warns. The statistics office, which until now had been forecasting GDP growth of 0.7%, has sharply downgraded its growth outlook for 2026, now capped at 0.4%.
This contrasts with the situation in the main neighbouring economies. Over the first two quarters, Germany recorded 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, for its part, grew by 0.6% and then 0.4%.
The engines of the French economy “seizing up”
According to Insee, “all the engines of domestic demand” are “seizing up”. Household consumption remains weak and investment is falling, weighed down by the slowdown in public projects linked to the municipal electoral cycle.
The institute also points to the impact of heatwaves, particularly severe for agriculture, as well as a labour market “in a worse state than elsewhere in Europe”, marked by rising unemployment and sluggish wages.
The deterioration in public finances is also limiting fiscal support for the economy.
Activity should, however, pick up slightly in the second half of the year. Insee is forecasting growth of 0.1% in the third quarter and then 0.2% in the fourth. Over the year as a whole, the expansion of the French economy would nevertheless remain around three times lower than that of its neighbours in the eurozone and the United Kingdom.
Inflation rising, purchasing power falling
Another piece of bad news for households: inflation is expected to continue rising and reach 2.9% at the end of the year, compared with 2.4% in August.
In this context, purchasing power is expected to fall by 0.4% over the year as a whole, notably due to the decline in paid employment and rising prices. “A large share of households” is likely to be affected, according to Insee.
Consumption, traditionally the engine 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 would fall by 0.3%, while household investment would decline by 1.3%.
Insee nonetheless 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.
Deficit target under strain
This downward revision also complicates the government’s budgetary equation. Just two months ago, the government had cut its growth forecast for 2026 from 0.9% to 0.7%.
Weaker growth is likely to put further pressure on 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 that he was not “very optimistic” about hitting that target.
The government is due to unveil its new economic forecasts on Friday, a few weeks before the presentation of the 2027 budget.
Additional sources • AFP