Paris – The French economy is set to expand by a modest 0.4% in 2026, according to the latest outlook from the national statistics office INSEE. The figure marks a downgrade from the agency’s June projection of 0.7% and falls well short of the government’s own target of 0.7%.
Why growth is slowing
INSEE attributes the slowdown to declining purchasing power, which is curbing household consumption, and to firms scaling back investment amid a challenging global backdrop, including the ongoing war in the Middle East. The forecast also reflects the impact of recent heatwaves and drought on agricultural output.
Quarterly outlook
On a quarterly basis, the agency expects a slight rebound in the second half of the year after a contraction in the first quarter and flat performance in the second quarter. Growth is projected at 0.1% in the third quarter, rising to 0.2% in the final quarter.
Inflation and household purchasing power
INSEE predicts that inflation, measured with EU‑harmonised data, will climb from 2.7% in August to 3.1% by the end of the year, delivering an average rate of 2.3% for 2026. Higher prices combined with stagnant wage growth are expected to reduce household purchasing power by 0.4%.
Despite the dip in real income, consumer spending is still forecast to increase modestly by 0.3%, largely because families are expected to draw on their savings to maintain consumption levels.
Business investment and employment
Business investment is projected to fall by 0.3% this year as companies contend with higher interest rates and an uncertain international environment. The weaker investment outlook contributes to an expected loss of about 52,000 private‑sector jobs, pushing the unemployment rate to 8.6% by year‑end, up from 8.0% a year earlier.
Fiscal implications
The softer growth outlook makes it increasingly difficult for the French government to meet its deficit‑reduction target. The administration had aimed to narrow the fiscal deficit to 4.9% of GDP in 2026, down from 5.0% in 2025, but is likely to revise that figure when it presents its 2027 budget later this month.
INSEE will release an updated forecast on Friday, ahead of the government’s budget submission to parliament at the end of the month.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
