Weekly Update - France Outlook: weak but still positive growth

In light of the latest data, the French economy appears more fragile than the rest of the euro area in coping with the new shock linked to the war in Iran. Without downplaying these difficulties, growth nonetheless has certain drivers, particularly external ones, which should help limit an overly abrupt slowdown.

An economy at a standstill or nearly so. 
Growth in the first quarter came as a negative surprise in France compared with the other major euro area economies. It stood at 0%, compared with 0.3% in Germany, 0.2% in Italy and 0.6% in Spain on a quarterly basis. At the same time, the main confidence indicators continue to deteriorate significantly, as illustrated by the economic sentiment index of households and companies at its lowest level since June 2025. All of these signals therefore suggest a durably more fragile cyclical situation in France than in its main partners.

Growth weighed down by its domestic drivers.
Over the past three years, French growth has nonetheless broadly remained around its potential (around 1% since the post-Covid normalization, in 2023, 2024 and 2025). However, this resilience owes much to the contribution of public demand, which accounts for half of growth, a support that is set to moderate in a context of more constrained fiscal room for maneuver. At the same time, private demand – household consumption and investment by firms and households – appears broadly weak, with a contribution close to zero. This weakness is expected to persist in the short term, in an environment marked by a gradual slowdown in the labor market (the unemployment rate is rising again to 7.9% at the end of 2025 compared with 7.3% a year earlier), renewed tensions in energy prices and more restrictive credit conditions. Indeed, French interest rates remain particularly under pressure (with a 10-year OAT at 3.6%), which weighs on the financing conditions of economic agents and slows credit momentum, particularly in real estate.

External factors limiting the risk of a decoupling.
In a more counter-intuitive way, external factors, long perceived as a weakness of the French economy, now constitute a relative source of support. Indeed, the external engine has contributed positively to growth in recent years, with a marked decrease in imports and strong export performance, despite a more constrained trade environment. Part of this improvement reflects a slight recovery in France’s relative competitiveness, in a context of more moderate wage developments than in some partner countries, and its sectoral specialization (aeronautics). This trend could continue, especially as France appears relatively less dependent on energy imports than other European economies and also benefits from sustained external demand for its electricity production. In this context, the European environment, while not truly supportive, could at least play a stabilizing role.

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