French government lowers its economic growth forecast to 0.5% in 2026

Paris: The French government has revised its economic growth forecast for 2026 downwards to 0.5%, from a previous estimate of 0.7%, according to Roland Lescure, the French Minister of Economy. This comes amid rising economic and financial pressures, and the need for tough measures to reduce the budget deficit and secure financial resources.

Lescure stated that inflation is expected to reach 2.1% this year, before decreasing to 1.8% in 2027. He also revealed that the target to bring the budget deficit down to 5% of GDP this year is no longer feasible, as the deficit will likely exceed this percentage. Consequently, the government must approve the 2027 budget before the end of the year due to limited financial maneuvering space.

This marks the third revision of France's 2026 growth forecast, with the government lowering its estimate from 1% to 0.9% in April, and then to 0.7% in June. The National Institute of Statistics and Economic Studies (INSEE) has also reduced its forecast for French economic growth in 2026 to 0.4%, compared to 0.7% previously, warning of a slowdown relative to its European counterparts.

Meanwhile, Emmanuel Moulin, Governor of the Bank of France, firmly rejected a proposal to cancel part of French debt, calling it illegal, dangerous, and unfeasible. Moulin argued that such an action would be against European treaties, lead to inflation and higher interest rates, and potentially result in France leaving the eurozone.

He cautioned that debt cancellation would fail to provide financial leeway or reduce the budget deficit, as it would create an equivalent gap in the Bank of France's budget. Bond markets have shown growing concern over French finances, with the ten-year bond yield reaching about 4.44% on Thursday, the highest level since 2008, compared to 3.50% for its German counterpart.

The gap between the two yields widened to approximately 0.94 percentage points, marking the highest level since 2012.