The Bank of France has lowered its economic growth forecast to 0.5% y/y

The expected growth rate for 2026 has fallen to 0.5% y/y from 0.9% y/y

France’s economy is growing more slowly than forecast, following a weak start to the year. The conflict in the Middle East has been the main factor holding back economic activity. On Tuesday, the country’s central bank warned that the economic outlook remains hostage to geopolitical events. This was reported by Reuters.

According to the Banque de France’s quarterly report, the growth rate of the eurozone’s second-largest economy this year will be just 0.5% year-on-year. The regulator had previously expected a figure of 0.9% year-on-year.

The downgrade in the forecast is due to two key factors:

1. An unexpected contraction of the economy by 0.1% year-on-year in the first quarter.
2. A sharp rise in global energy prices, triggered by the outbreak of war in Iran at the end of February.

Following the decline in GDP in the first quarter, economic growth is expected to stall in the current quarter. At the same time, a monthly business sentiment survey of 8,500 companies showed the first signs of a recovery in June compared with May.

Economic acceleration is forecast for the coming years. In 2027, GDP is expected to grow by 0.9% year-on-year (the previous forecast was 0.8% year-on-year). In 2028, growth will reach 1.2% year-on-year against a backdrop of a recovery in consumer spending and business investment.

However, consumption is currently being held back by high inflation, which is significantly eroding households’ purchasing power. The Bank of France has significantly revised its inflation expectations compared with its March forecasts.   Inflation is expected to peak at 2.5% in 2026, although the March forecast had projected a rate of 1.7%.

A decline in inflation in 2027–2028 is expected provided that energy prices normalise, which would allow consumer demand to recover.

Given the high level of geopolitical instability, the Bank of France has also developed alternative, less favourable scenarios. These point to risks of even weaker economic growth and higher inflation compared with the baseline forecast.

Representatives of the Central Bank noted that their calculations were based on oil futures as at 21 May. Consequently, they do not take into account recent events in the Middle East, in particular the ceasefire agreement, which has already contributed to a fall in oil prices to a three-month low.

As reported by GMK Center, French steelmakers reduced steel production by 8.7% in 2025 compared with 2024, to 9.82 million tonnes. The country ranked 19th in the World Steel Association’s global ranking of steel-producing countries (70).