France's Growth Forecasts Cut After Q1 Slump and Energy Shock

Overview

• The Banque de France revised its baseline on June 16 to 0.5% growth for 2026, expects zero growth in Q2 and sees harmonized inflation at about 2.5%, while warning the deficit could rise toward 5.2% and public debt near 122% of GDP by 2028 without extra measures.
• Insee published a separate note on June 17 that is slightly more optimistic, projecting 0.7% growth for 2026 with a Q2 rebound of 0.3%, year‑end inflation near 2.7%, a roughly 0.3% fall in household purchasing power and unemployment rising to about 8.4%.
• Forecasters trace the downgrade mainly to an unexpected 0.1% GDP drop in Q1 and a sharp fall in exports of about 3.5%, together with a spike in oil prices after disruptions to traffic through the Strait of Hormuz.
• Some industrial sectors — notably aeronautics, refining and chemicals — show resilience and have temporarily supported activity, but consumer spending is weakening as inflation squeezes household budgets.
• Outlook remains highly uncertain because diplomatic moves in mid‑June, including a possible US–Iran accord announced on June 14 that lowered oil prices, postdate the Banque de France baseline and could materially change near‑term inflation and growth trajectories if the easing holds.