French economy grinds to a halt
The French economy is teetering on the edge of stagnation, as recent data revisions reveal a concerning loss of momentum. Per the full note from ing-think, GDP growth has been slashed, with second-quarter figures now showing stagnation rather than previous indications of growth. This underperformance, particularly in areas like agricultural output and market services, complicates the government's already ambitious fiscal targets for the coming years. With GDP growth forecasts being downgraded to a mere 0.5% by some analysts, traders should brace for potential shifts in EUR positioning amid waning confidence in France's economic resilience.
What the desk is arguing
The desk firmly believes that the French economy is close to a technical recession, given the revisions to GDP growth data that show troubling signs of stagnation. The latest statistics indicate that household consumption is a fleeting bright spot, with real purchasing power pressured by inflation, signaling potential fragility in consumer sentiment. Per the full note from ing-think, the decline in employment—recording six consecutive quarters of job losses—is particularly alarming and indicative of deeper structural issues.
The revisions have been significant; first-quarter growth figures have been downgraded from -0.1% to -0.2%, providing a clearer picture of the economic landscape that policymakers must navigate. The implications for government fiscal programs could become increasingly dire, as the revised GDP growth forecast of 0.7% now seems out of reach, intensifying scrutiny on French fiscal discipline as they try to stimulate a stagnant economy.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.075, projecting a range between 1.04 and 1.12 as we assess the evolving economic landscape. In the market, jpmorgan forecasts a target of 1.10 for March 2026, while bofa adopts a more cautious outlook with a target of 1.04 for the same period.
This desk's view aligns with the consensus of bearish sentiment, particularly emphasizing the risk to growth stemming from inadequate government measures to stimulate the economy amidst declining GDP. Given the downward adjustments across various metrics, this outlook reflects the concerns shared broadly within the market.
How other firms see it
Aligned firms such as jpmorgan foresee a similar trajectory for EUR/USD amid worsening economic indicators. Conversely, bofa presents a more pessimistic outlook, suggesting a significant weakening of the euro against the dollar due to France's economic struggles.
The unfolding scenario has implications for pairs such as EUR/USD and may also cause ripple effects toward broader sentiment in the financial markets, particularly as investors look for clues into the European Central Bank's future monetary policy decisions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01French GDP growth downgraded to 0% for Q2 2023, signaling potential recession risks.
- 02Household consumption offers a temporary lift, yet declining employment indicates systemic issues.
- 03Government fiscal targets are under severe threat due to weaker-than-anticipated economic momentum.
- 04Consensus positioning suggests bearish sentiment on the euro against the dollar.
Market implications
Watch for EUR/USD around the 1.075 level, particularly in light of the recent stagnant GDP data that could drive further currency weakness if job numbers do not recover. The deteriorating economic indicators could also shift market expectations regarding ECB policy.
Risks to this view
A potential reversal of this bearish sentiment could occur if unexpected fiscal measures by the French government successfully stimulate stronger economic growth or if employment figures begin to show signs of recovery, reinstating confidence in the euro.
Articles French economy grinds to a halt Published 09:25 France Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The French economy has avoided recession, but only just. Downward revisions to GDP data confirm that economic activity lost more momentum than previously thought, making the government’s fiscal targets even harder to achieve Charlotte de Montpellier We remain more pessimistic than the French government and forecast GDP growth of 0.5% on average for 2026 French GDP revised downwards The second estimate of French GDP growth disappointed. Second-quarter GDP was revised down and is now estimated to have stagnated, compared with the previously reported 0.2% quarter-on-quarter increase.
First-quarter growth was also revised lower, to -0.2% from -0.1%. These revisions were driven by weaker-than-expected agricultural output and softer real activity in market services. Looking at the details, the only bright spot was a recovery in household consumption in the second quarter, which grew by 0.3% after contracting by 0.3% in the first quarter.
This improvement came despite a decline in households’ real purchasing power due to rising inflation. Meanwhile, investment remained weak, falling by 0.3% after a 0.8% decline in the previous quarter. Net trade and inventories continued to fluctuate significantly from one quarter to the next.
Today’s data release from INSEE also showed that salaried employment declined by 0.1% in the second quarter after stagnating in the first. Total employment is down 0.3% year-on-year, but more worryingly, the private sector has now recorded six consecutive quarters of job losses. Fiscal consolidation will require greater efforts Taken together, these figures suggest that the French economy came very close to a technical recession in the first half of the year.
The weak growth backdrop means that the government's revised GDP growth forecast of 0.7% is now out of reach. With the annual carry-over growth rate standing at just 0.3%, France would need quarterly growth of around 0.5% in both the third and fourth quarters to achieve that target, an outcome that appears highly unlikely. As a result, additional fiscal consolidation measures will be needed in 2026 if the government is to keep the public deficit below 5%, following the 5.1% deficit recorded in 2025.
Without further measures, and with growth remaining so weak, the deficit could end up even higher than last year. The government’s previous commitment to reduce the deficit to 4.6% this year now appears firmly out of reach. This also means that the adjustment required for the 2027 budget will be even greater than previously expected.
Under unchanged policies, the European Commission's spring forecasts projected a deficit of 5.7% of GDP in 2027, pushing public debt up to 120.2% of GDP. Against this backdrop, the budget discussions that are now beginning within the government will be closely monitored by bond markets. The approach of the 2027 presidential election only adds to the uncertainty surrounding the fiscal outlook.
Despite inflation, activity could still edge a little bit higher For the remainder of the year, we remain more pessimistic than the government and forecast GDP growth of 0.5% on average for 2026, with risks tilted to the downside. The third quarter has been affected by heatwaves, but the improvement in business confidence during July and August, together with solid consumer spending in July, suggests that growth should be positive in the third quarter, albeit modest. Inflation also increased in August, as expected, rising to 2.4% from 2.1% in July, largely because of higher energy prices.
Inflationary pressures remain very subdued across other categories: goods inflation stood at -0.4%, services inflation at 2.0%, and food inflation at 1.1%. There is therefore no evidence of meaningful second-round effects in France. Economic activity remains simply too weak for higher energy prices to spread more broadly across the economy.
Inflation GDP France Deficit Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Charlotte de Montpellier Senior Economist, France and Switzerland Charlotte de Montpellier is a Senior Economist in ING Belgium covering France and Switzerland.
She joined us in February 2018. Prior to this, she worked as a research and teaching assistant at… In this article French GDP revised downwards Fiscal consolidation will require greater efforts Despite inflation, activity could still edge a little bit higher
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