The French economy contracted by 0.1% in the third quarter of 2026, missing forecasts and marking the second quarterly decline this year. A sharp drop in capital investment, down 0.6%, drove the contraction, despite a 0.4% rise in household consumption. High borrowing costs, energy prices, and political instability are weighing on the Eurozone’s second-largest economy.
Finance Minister Roland Lescure stated the economy is at a standstill due to external and internal shocks, including a heatwave and the Strait of Hormuz crisis. The government is pushing its 2027 budget, aiming to cut the deficit to 5% through €43 billion in savings and tax hikes. However, rising bond yields—reaching 5% for the first time since 2002—and a widening spread over German bonds signal investor concern.
Public debt now approaches 120% of GDP. With no clear parliamentary majority, the government may use constitutional mechanisms to pass the budget. Economists warn the fiscal outlook is deteriorating.
Source: Financial Times Markets · Summarized by HeadlinesBriefing