French central bank trims growth outlook as demand softens

France's economy is expected to grow more cautiously in 2026 as consumer spending and business investment slow, the central bank warned on Tuesday. The Bank of France reduced its growth forecast for the euro zone's second-largest economy to 0.4% from 0.5% in June, citing uncertainty over energy prices, public finances and geopolitical tensions. While exports still benefit from robust global trade, consumer and business caution are dampening domestic demand, the bank said in its quarterly outlook.

Household purchasing power is projected to contract this year as wages lag behind inflation caused by the energy price surge, before rebounding in 2027 and 2028. The central bank anticipates growth to accelerate to 0.9% in 2027 and 1.2% in 2028 once household income strengthens, energy price pressures ease and exports continue to bolster the economy.

However, the Bank of France cautioned that risks remain on the downside, with the Middle East conflict remaining the primary source of uncertainty due to its impact on oil and gas prices.

Under a less favorable scenario, growth could plunge sharply and dip slightly negative in 2027. Inflation is expected to rise to 2.3% this year, easing to 1.9% in 2027 and further to 1.6% in 2028. Unemployment is forecast to peak at 8.4% by year-end and average 8.3% next year before declining to 8.0% in 2028. A separate survey by the Bank of France shows the economy is forecast to expand 0.1% in the third quarter from the previous quarter.