Paris – The Bank of France announced on Tuesday that it expects the French economy to grow only 0.4% in 2026, a slight downgrade from the 0.5% forecast issued in June. The revision reflects a slowdown in domestic demand as households tighten spending and firms delay investment.
Why growth is slowing
According to the central bank’s quarterly outlook, French consumers are feeling the pinch of higher interest rates, which make financing more expensive. At the same time, businesses remain hesitant to expand because of lingering uncertainty over energy prices, public‑finance constraints and ongoing geopolitical tensions, especially the conflict in the Middle East that continues to affect oil and gas markets.
Government and statistical revisions
In preparation for the 2027 budget, the French government also trimmed its 2026 growth estimate on Friday, moving from 0.7% to 0.5%. The national statistics office INSEE followed suit on Thursday, lowering its projection from 0.7% to 0.4%. The Bank of France’s new forecast aligns with these recent adjustments.
Outlook for households and inflation
The central bank warned that household purchasing power will contract this year because wages are not keeping pace with inflation, which remains elevated after the energy price shock. Inflation is expected to fall to 2.3% in 2026, down from 2.5% in June, and to ease further to 1.9% in 2027 and 1.6% in 2028.
Future growth prospects
Despite the near‑term weakness, the Bank of France projects a gradual recovery. Growth is forecast to rise to 0.9% in 2027 and 1.2% in 2028 as purchasing power improves, energy‑price pressures ease and exports continue to support the economy.
Labor market expectations
Unemployment is projected to reach 8.4% by the end of 2026, average 8.3% in 2027 and then slip to 8.0% in 2028, reflecting a modest improvement as the economy picks up.
Business sentiment
In a separate monthly survey of 8,500 executives, the Bank of France noted that the economy is expected to grow 0.1% in the third quarter, up from flat growth in the previous three months.
Risks
The central bank cautioned that downside risks remain, with the Middle‑East conflict still the biggest source of uncertainty because of its impact on energy markets. In a more adverse scenario, growth could slow sharply and turn slightly negative in 2027.
Overall, the revised outlook underscores the challenges facing France’s economy this year, while also highlighting a path toward modest recovery in the latter half of the decade.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
