France's Q2 Growth Revised to Zero, Clouding 2025 Outlook

France's economy failed to grow in the second quarter, according to a revised estimate from the national statistics agency INSEE, which cast doubt on the government's targets for the rest of the year.

INSEE cut its reading for the three months to June to 0.0% from an initial 0.2%, following a 0.2% contraction in the first quarter. The agency attributed the downgrade partly to weak agricultural output, which was severely impacted by the summer's heatwaves and drought.

Finance Minister Roland Lescure described the revision as the first impact of a "horrible summer" marked by extreme weather, including wildfires. He indicated that the ministry would incorporate a likely weak third quarter when it updates its growth and deficit forecasts in September.

The revised data makes the government's full-year growth forecast of 0.7% increasingly difficult to achieve, as it would require 0.5% growth in each of the final two quarters. This weaker momentum also raises the risk that the government will miss its target of narrowing the fiscal deficit to 5.0% of GDP this year.

Despite the overall stagnation, household consumption—a traditional growth driver—rebounded to 0.3% from a 0.3% decline in the previous quarter, supported by higher spending on food, energy, and manufactured goods. Exports also surged to 2.9% after a 3.0% drop, driven by a strong recovery in aeronautical sales. However, companies drawing down inventories to meet shipments subtracted 0.7 percentage points from growth.

Separately, INSEE reported that EU-harmonised inflation accelerated to 2.7% in August, a three-month high, as energy prices rebounded. The extreme weather has compounded an already challenging environment for the euro zone's second-largest economy, which has faced external shocks including a tariff dispute with the U.S. and high energy costs linked to the U.S.-Israeli conflict with Iran.