France Faces Rising Borrowing Costs Amid Modest 2027 Economic Growth Outlook

On September 11, 2026, the French government unveiled its 2027 budget plans projecting a modest 1% economic growth rate excluding inflation. Final adjustments to the budget will be decided in a meeting scheduled for Thursday. Despite this optimistic growth forecast, economists remain skeptical about any reduction in the national deficit for the upcoming year.

A significant challenge shadowing the budget planning is the sharp increase in France’s government borrowing costs. On September 10, France's 10-year government bond yield rose to 4.44%, the highest since 2008, while Germany's benchmark bonds stood at approximately 3.5%. This disparity resulted in a Franco-German spread of 0.94 percentage points, the widest gap since the Eurozone debt crisis in 2012.

Economic analysts attribute these rising borrowing costs to heightened inflation risks fueled by surging energy prices, partly due to ongoing tensions in the Middle East. Alexandre Baradez of IG France noted that although the current situation is not as dire as in 2012, it remains abnormal. Charlotte de Montpellier from ING emphasized the fragile political climate and deteriorating public finances, particularly as the government lacks a parliamentary majority for the 2027 budget vote, complicating efforts to manage France’s financial position.

The government anticipates that the debt servicing burden will reach €64 billion in 2026, underscoring the importance of factoring these costs into next year's budget. This financial strain, paired with cautious growth expectations, sets a challenging economic backdrop as France prepares its 2027 fiscal strategy.