France's Economic Growth Holds Steady Amidst Political Turmoil, Budget Uncertainty Looms
France's economy shows modest growth despite political instability, but budget uncertainties pose risks for 2026 fiscal planning.
- • Banque de France forecasts 0.3% GDP growth in Q3 2025 despite political crisis.
- • Public deficit target for 2026 revised to below 5% of GDP.
- • Budget proposal due by October 13 amid government reshuffle.
- • Constitutional measures exist to prevent government shutdown but could cause political friction.
Key details
The Banque de France projects a 0.3% growth in France's GDP for the third quarter of 2025, maintaining optimism despite ongoing political instability and global trade tensions. According to a survey by the BdF conducted from late September to early October, service sector activities remain resilient while manufacturing growth slows and construction contracts after several months of increase. However, concerns persist among business leaders over political climate and trade issues, particularly regarding U.S. tariffs on agri-food and machinery sectors. Supply chain challenges have risen in some industries such as electrical equipment and IT products, although recruitment difficulties eased slightly.
Simultaneously, France faces pressing challenges related to its 2026 budget. A critical deadline approaches on October 13, when a budget proposal must be submitted amidst the resignation of Prime Minister Sébastien Lecornu and an impending government reshuffle. Lecornu indicated the public deficit target has been revised upward to below 5% of GDP for 2026, up from 4.7% projected just two weeks earlier. The new government will inherit a "ready to use" budget draft, but it requires extensive parliamentary debate.
In the face of potential legislative deadlock, constitutional measures exist to prevent a government shutdown, including enacting a special law to allow continued tax collection and functioning of public services through early 2026. This approach was utilized after the previous government collapsed at the end of 2024. However, these provisions cannot address certain issues such as adjusting income tax brackets for inflation, which remains contentious. Additionally, a constitutional clause permits budget implementation by ordinance if Parliament does not act within 70 days, though this could provoke political backlash and censure risks.
These developments underscore a fragile balance between economic resilience and political uncertainty. The government must navigate complex fiscal and political terrain in the coming weeks to ensure continuity and support economic growth amid widespread unrest and governance challenges.