The French government has lowered its 2026 economic growth forecast from 0.7% to 0.5%, citing weak economic activity in the first half of the year. Minister of Economy Roland Lescure announced the revision on Friday, following a 0.2% contraction in the first quarter and stagnant growth in the second.
A day earlier, the INSEE national statistics institute released an even more pessimistic outlook, cutting its 2026 growth forecast for the French economy from 0.7% to 0.4%. The institute warned that the French economy is “losing ground.”
By comparison, Germany, Italy, Spain, and the United Kingdom all recorded economic growth in the first two quarters of the year. Germany grew by 0.4% and 0.3%, Italy by 0.3% and 0.2%, Spain by 0.6% and 0.7%, and the United Kingdom by 0.6% and 0.4%.
Weak domestic demand complicates budget plans
The downgraded forecast complicates the government’s budget plans, as it aims to reduce the deficit from 5.1% of GDP in 2025 to 5% in 2026. Prime Minister Sébastien Lecornu previously admitted he is not “very optimistic” about meeting this target.
According to INSEE, “all engines of domestic demand” have effectively stalled. Household consumption remains weak, and investments are shrinking, partly due to a slowdown in public projects linked to the municipal election cycle.
The institute also notes that the French labor market “is in a worse state than in other European countries”: unemployment is rising, and wage growth is slow. Deteriorating public finances are also limiting the scope for fiscal support for the economy.
Inflation rises, purchasing power falls
INSEE expects economic activity to pick up slightly in the second half of the year, with growth potentially reaching 0.1% in the third quarter and 0.2% in the fourth. Nevertheless, the institute forecasts that annual growth for the French economy will be roughly three times weaker than that of its eurozone neighbors and the United Kingdom.
Rising inflation will be another blow to households. INSEE projects it will reach 2.9% by the end of the year, up from 2.4% in August. Due to a decline in paid employment and rising prices, the institute forecasts that household purchasing power will fall by 0.4% in 2026.
Household consumption, traditionally a key driver of the French economy, is expected to grow by only 0.3% this year. Business investment is forecast to shrink by 0.3%, while household investment is expected to drop by 1.3%.
Meanwhile, Roland Lescure forecasts 1% growth for the French economy in 2027. He estimates inflation will be 2.1% in 2026 and 1.8% the following year.
INSEE emphasizes that the forecast remains uncertain, particularly due to the potential impact of heatwaves on third-quarter economic activity and the situation in the Middle East. The institute also noted the negative impact of extreme heat on agriculture. The French government estimates that without additional measures, climate change could reduce the country’s GDP by 3.6% by 2050.
Source: Euronews
