Investment and exports weaken
The figures released Friday by the National Institute of Statistics and Economic Studies (Insee) extend France's run without growth this year. Output fell 0.2% in the first quarter and was unchanged in the second before declining again between July and September.
Household spending provided some support in the third quarter, growing 0.4% after a 0.2% increase. Investment weakened, however: gross fixed capital formation dropped 0.6%, following a 0.5% decline. Exports fell 1.7% while imports edged up 0.1%, leaving foreign trade to subtract 0.6 percentage points from GDP growth. Manufacturing output fell 1.4%.
Prices meanwhile rose faster. Annual inflation reached 3.4% in October, up from 3.1% in September and the highest rate since January 2024, according to Insee.
Economy and Finance Minister Roland Lescure blamed the contraction on the summer's extreme heat and surging energy prices, POLITICO Europe reported. Jérémie Peloso, BCA Research's chief strategist for Europe, told Euronews: "France is very likely to experience a technical recession in the coming quarters."
The economic figures arrive amid intense social tensions, ahead of another nationwide day of protests over living costs and in support of young people's demands.
Budget targets face a weaker economy
Speaking on Franceinfo, Lescure called the economy "at a standstill" and warned that France "will hit the wall" unless lawmakers pass the government's "turnaround" budget. The proposal seeks €43 billion in savings to reduce the public deficit to 5% of GDP in 2027, according to his remarks reported by POLITICO Europe.
The latest contraction also makes the 2026 deficit goal harder to achieve. The government's pledge to bring the deficit down to 5.4% of GDP this year assumed economic growth of 0.5%, POLITICO Europe reported.
Securing timely approval is a recurring challenge. According to POLITICO Europe, France's fragmented parliament failed to approve budgets before the start of the year in both 2024 and 2025.
If negotiations fail, the government has left open the use of Article 49.3 of the constitution. That mechanism allows legislation to pass without a vote unless lawmakers approve a no-confidence motion. Ministers could also turn to ordinances, although that procedure has never been used to enact a budget since the Fifth Republic began in 1958.
The fiscal outlook already points to higher debt. In September, the finance ministry projected public debt at 119.3% of GDP in 2026 and 121.7% in 2027, more than twice the EU's 60% reference limit. Insee described the projected levels as the highest since 1978. As of September, France ranked behind only Greece and Italy for indebtedness in the eurozone, Euronews reported.
Investors look beyond passage of the bill
France's market borrowing costs exceeded 5% last week. By Friday, the 10-year government bond yield had eased to 4.9%, or 0.17 percentage points below its October 22 peak. The gap between French and German borrowing costs was about 1.55 percentage points.
In a note to BCA clients seen by Euronews, Peloso said the previous day's largely unsurprising European Central Bank meeting "certainly contributed to this easing". ECB President Christine Lagarde nevertheless declined to comment on France's situation.
For Jérôme Mathis, an economics professor at Paris-Dauphine University, passing a budget is not enough to deliver a quick recovery. He cautions that fiscal adjustment generally restrains growth in the short term. The larger challenge, he argues, is to give investors a credible view of public finances over the medium and long term.
Higher interest rates gradually feed into government spending, limiting future budget flexibility and weighing on private investment, Mathis says. Uncertainty has its own costs: "Companies postpone certain investments, households defer some spending and markets demand a higher risk premium."
His concern is less about individual measures that might fail to pass than about an extended period without a clear fiscal path. As he puts it: "The main risk to the French economy is not the absence of a budget. It is the lack of visibility over the trajectory of public finances."
Mathis also cautions against treating an ordinance as a sufficient economic remedy. It could settle some immediate uncertainty, but investors care about whether decisions are legitimate and durable as well as how quickly they are made. Although markets generally favor a disputed decision over continued indecision, any confidence boost could be limited if the budget looks vulnerable to reversal after the presidential election or signals a lasting inability to assemble parliamentary majorities.
In his assessment, investors are not questioning France's technical ability to collect taxes or repay debt. They are questioning its ability to slow the growth of that debt. "As long as this question remains, the pressure on interest rates is likely to persist, whatever institutional vehicle is chosen to adopt the budget," he said.
