French economy ‘headed for a wall’ as GDP shrinks

The French economy contracted in the third quarter, with gross domestic product (GDP) shrinking by 0.1% from July to September, according to data released by the national statistics office Insee on Friday. Finance Minister Roland Lescure warned that the government's failure to pass a budget aimed at reducing the deficit could lead to serious trouble, potentially putting the economy on a path towards stagnation.

GDP fell by 0.1% from the previous quarter, while household consumption grew by 0.4% and investment declined by 0.6%. Foreign trade also contributed negatively to growth, shaving 0.6 percentage points off the overall GDP growth. Analysts noted that the GDP figures would make it challenging for the government to meet its projected growth targets for the year, which stand at 0.5%, or even the 0.4% forecast by Insee and the Bank of France.

High debt levels and deficits have driven up government bond yields in recent weeks, adding to concerns. The underwhelming 2027 budget proposal further exacerbated worries about government spending remaining elevated ahead of the presidential elections in spring 2027. The elections are expected to be closely contested, with far-right candidate Marine Le Pen, known for her fiscal populism, potentially emerging as a strong contender.

Nationwide protests against the rising cost of living and growing income inequality have intensified, leading to some of the most violent demonstrations in recent years. The Yellow Vest movement and student unions have called for fresh demonstrations on Saturday.