France cuts 2026 growth forecast to 0.7% as Middle East conflict and weak first quarter weigh on outlook

Forecast revision

The French government lowered its 2026 GDP growth forecast to 0.7% on Tuesday, down from the 0.9% it had projected since mid-April. Finance Minister Roland Lescure announced the change during a meeting of the public finance alert committee, an oversight body created in 2025. The previous forecast of 0.9% had itself been trimmed from an initial 1% in April, when the government also raised its inflation estimate because of the war in the Middle East.

This revision takes into account a less favourable start of the year than anticipated, linked in particular to the special (budget) legislation, as well as the international situation, notably the conflict in the Middle East.

Reasons for the downgrade

The economy contracted by 0.1% in the first quarter, a surprise decline that set a weak tone for the year. The finance ministry said the second quarter would be marked by the consequences of the Middle East conflict on activity, and it adopted a cautious approach for the third and fourth quarters. According to INSEE, the national statistics institute, the economy is expected to rebound with 0.3% growth in the second quarter before slowing to 0.1% in each of the final two quarters.

If the decline in inflation observed in June and the recovery in consumption are encouraging signs, they will probably not be enough to achieve 0.9% growth for the year.

Institutional alignment

The new 0.7% government forecast matches those of INSEE, the International Monetary Fund, and the OECD, all of which also expect 0.7% growth for France this year. The Bank of France is more pessimistic: it cut its own forecast to 0.5% in June, though that estimate did not incorporate the Iran-US agreement reached shortly afterward, which helped bring inflation down to 1.8% in June from 2.4% in May.

Budget implications

Slower growth complicates the government's fiscal arithmetic. France is targeting a public deficit of 5% of GDP in 2026, after 5.1% in 2025, the second highest in the eurozone behind Belgium. Public debt stood at 3,536.1 billion euros at the end of the first quarter. The government had already announced 6 billion euros in savings in April, and further budget cuts were expected to be unveiled later on Tuesday. Prime Minister Sébastien Lecornu chaired the alert committee meeting, which brought together ministers, lawmakers, local government representatives, social security officials, and trade unions to assess the strained fiscal position and set a direction for public finances.