Growth: France lags behind its European neighbours

France Faces a Sharper Slowdown Than Its European Peers

Poinews.com – Growth – France is heading into the final months of 2026 with an economy that has lost momentum while several neighbouring countries continue to expand. A contraction of 0.2% in the first quarter was followed by no growth in the second, leaving France behind Germany, Italy, Spain and the United Kingdom over the first half of the year.

Insee has cut its forecast for French GDP growth in 2026 to 0.4%, down from its earlier estimate of 0.7%. The revised outlook underlines the scale of the country’s weakness at a time when growth elsewhere in Europe has remained comparatively resilient.

“Losing ground”

Germany expanded by 0.4% in the first quarter and 0.3% in the second. Italy recorded growth of 0.3% and then 0.2% over the same periods. Spain posted the strongest pace among the large neighbouring economies, with increases of 0.6% followed by 0.7%. The United Kingdom grew by 0.6% in the first quarter and 0.4% in the second.

Domestic Demand Has Stalled

The weakness in France is not being driven by a single sector. Insee says the principal sources of domestic demand have all slowed at once. Consumer spending remains subdued, while investment is declining rather than providing support to activity.

“All the engines of domestic demand” are “stalled”

Public investment has been affected by a slowdown in projects associated with the municipal electoral cycle. That matters because local spending can support construction, services and related business activity. At the same time, companies are becoming less willing to invest, and households are reducing their own investment, including expenditure linked to housing.

Business investment is expected to fall by 0.3% during 2026. Household investment is projected to decline more sharply, by 1.3%. Those reductions reinforce a broader picture in which private-sector and public-sector demand are both offering limited support.

Extreme heat has added another complication. Heatwaves have been particularly damaging for agriculture and may also affect economic activity during the third quarter. The outlook is further clouded by uncertainty over developments in the Middle East, which could influence prices, trade conditions and business confidence.

Households Feel Pressure From Prices and Employment

The revised forecast brings difficult implications for household finances. Inflation is expected to rise to 2.9% by the end of 2026, compared with 2.4% in August. As prices climb and paid employment weakens, purchasing power is forecast to decrease by 0.4% over the full year.

That decline would affect a broad section of the population rather than a narrow group of consumers. Slower wage growth and rising unemployment are weighing on household confidence and disposable income. France’s labour market is described as being in a weaker condition than those of other European countries, leaving consumers with less room to increase spending.

“A large share of households” is likely to be affected.

Consumption has traditionally been a key force in the French economy, but it is now expected to rise by only 0.3% in 2026. A modest increase in consumer spending may be insufficient to offset falling investment and the pressure created by higher prices.

Households are also likely to rely more on their savings. The savings rate is expected to ease from 17.8% of gross income in 2025 to 17.3% this year. While that shift could provide some short-term help to spending, it also illustrates the extent to which households may be drawing on financial reserves to manage a more difficult economic environment.

A Limited Recovery Expected Late in the Year

There is still an expectation of a small improvement in the second half of 2026. GDP is forecast to increase by 0.1% in the third quarter and by 0.2% in the fourth. Yet even if those gains materialise, annual growth in France would remain around three times weaker than growth across its eurozone neighbours and the United Kingdom.

The difference is important beyond the headline GDP figures. Slower expansion can reduce tax receipts, make job creation harder and leave policymakers with fewer options to support households or businesses. It can also make France less able to narrow the gap with stronger-performing European economies.

Budget Plans Become More Difficult

The downgraded growth forecast also creates a tougher fiscal challenge for the government. Only two months ago, the executive had already reduced its 2026 growth assumption from 0.9% to 0.7%. The new Insee estimate is substantially below both of those previous figures.

France aims to reduce its public deficit to 5% of GDP in 2026, following a deficit of 5.1% in 2025. A weaker economy could make that target harder to reach because slower activity tends to restrain public revenue while social and economic pressures can increase demands on state spending.

Prime Minister Sébastien Lecornu has already said he was not “very optimistic” about meeting the deficit objective. The government is scheduled to present updated economic forecasts on Friday, shortly before the 2027 budget is introduced.

The coming forecasts will be closely watched for signs of how the government intends to reconcile slower growth, elevated inflation and the need to improve public finances. For households, the immediate concern is more direct: prices are rising, employment conditions are weakening and the expected recovery remains modest. For France, the challenge is to regain momentum without relying on the budget support that deteriorating public finances increasingly limit.