The French government lowered its 2026 growth forecast to 0.5% on Friday, the third downgrade this year, as neighbouring economies including Germany, Spain and Italy are expected to grow faster.
Prime Minister Sebastien Lecornu's government had already cut its growth outlook from an initial 1% to 0.9% in April, then to 0.7% in July, before settling on 0.5% for 2026. The government is now banking on an uncertain rebound to 1% growth in 2027.
The downgrade follows a similar move by France's National Institute of Statistics and Economic Studies (Insee), which had revised its own forecast for this year to 0.4%. Insee warned of a French economic "decoupling" from its European neighbours.
According to Insee, Germany is on track for 1% growth in 2026, Spain for 2.6% and Italy for 0.9%.
Why France is falling behind
Lionel Fontagne, director of the Institute for Macroeconomic and International Policies (i-MIP), told TF1info that the crisis in the Strait of Hormuz had hurt all European economies, but that France's neighbours had been better able to withstand it.
Fontagne said the combination of France's debt burden and a cash-strapped public budget had limited the state's capacity to offset the recessionary effect of the Hormuz crisis. He explained that when households lack confidence and private consumption fails to drive growth, only two engines remain: foreign trade and public spending. Foreign trade contributed only modestly, he said, leaving public consumption as the lever policymakers had been counting on.
Fontagne said the problem today is that the state can no longer compensate through the public budget. He said Germany and Spain have greater fiscal room to maneuver, which allowed them to fully deploy public consumption, including support for household spending, which remained the last available lever for growth in such a context. He noted that fuel subsidies, for example, could be more generous in those countries.
He said Spain's situation is somewhat different, since its growth is also fueled by European funds. According to Fontagne, the Spanish and Italian economies benefited significantly from the European recovery plan launched after Covid-19, a boost France benefited from less.
The heatwave's toll on growth
The Hormuz crisis is not the only factor at play. Insee has said the summer heatwave cost the French economy around 0.1 percentage points of growth over the year, mainly through its impact on agricultural production.
Asked why Spain appeared less affected than France, Fontagne said macroeconomists did not have a clear view on this. He said France was hit harder by drought and heat than Germany and Italy, affecting a range of crops beyond just corn and sunflowers.
Fontagne suggested Spain may have fared better because it has a different crop mix, and possibly because the country is more accustomed to drought, better prepared for it, and has better irrigation. He said that as heatwaves are expected to recur more often because of climate change, this is a factor that will need greater attention in the future.
Outlook for 2027
Asked whether Lecornu's government's forecast of 1 percentage point of growth for 2027 seemed credible, Fontagne said it was good to have ambition, but that there is major uncertainty about what will happen next year.
He said one could believe things will return to normal before the end of the year, as US President Donald Trump has claimed, or one could believe the crisis is far from over, especially given recent developments in the region. Fontagne said it is nonetheless a very good thing that the government is being transparent, since lawmakers need accurate growth outlooks to debate the budget in the National Assembly. He said the available evidence raises serious concern about the government's ability to keep the public deficit at the level originally announced.
A silver lining from neighbouring economies
Fontagne said that even as France lags behind, faster growth among its neighbours is good news for the French economy. He said the faster the eurozone emerges from the current situation, and it appears some "engine" economies are well positioned for 2027, the better the growth outlook for France becomes.
He said German and Spanish growth benefits France because it lifts French exports, given that the countries operate within an integrated economic zone.
Fontagne concluded that there are grounds for concern given the risk of the situation worsening in the Strait of Hormuz and beyond, but also grounds for hope given that growth is picking up again among France's neighbours.
