France's Growth Outlook Cut to 0.4% as Purchasing Power Slips

France's economy is on course to expand by only 0.4% this year, a sharp downgrade from the 0.7% the national statistics office had pencilled in three months earlier and less than half the 0.9% recorded last year.

The revised figure, issued by INSEE, sits below the government's current 0.7% projection. Ministers are due to update their own forecasts on Friday, ahead of sending the 2027 budget bill to parliament at the end of the month.

The softer outlook puts the government's deficit-reduction goal under severe strain. It had intended to bring the fiscal shortfall down to 4.9% of economic output this year from 5.0% in 2025, but that target is also expected to be revised on Friday.

Quarterly momentum offers little relief. After the economy contracted in the first three months of the year and stalled in the second, INSEE sees growth of just 0.1% in the third quarter, before a modest pickup to 0.2% in the final three months. Summer heatwaves and drought are weighing on agricultural output.

Household finances are the main drag. With inflation on EU-harmonised terms rising from 2.7% in August to 3.1% by December — an average of 2.3% for the year — and wages broadly flat, purchasing power is expected to shrink by 0.4%. Consumer spending is still forecast to rise 0.3%, as households draw on their savings to cushion the squeeze.

Businesses are proving equally cautious. Weak demand and higher interest rates are expected to push investment down 0.3% this year, with firms also facing an uncertain international climate linked to the war in the Middle East.

Against that backdrop, the private sector is projected to shed 52,000 jobs over the year, lifting the unemployment rate to 8.6% by December from 8.0% a year earlier.