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France heads into 2026 with an economy that remains resilient but increasingly constrained by high public deficits and prolonged political deadlock.

While growth is expected to recover modestly as inflation eases and financing conditions improve, rating agencies and banks warn that weak fiscal consolidation and legislative deadlock are now structural features of France’s outlook.

These concerns were underscored when the credit rating agency KBRA downgraded France’s long-term sovereign rating to AA- last week, citing persistently high deficits and a deteriorating debt trajectory. Revising the outlook to stable from negative, the agency warned that without decisive reform and spending restraint, France’s sovereign credit metrics would remain under pressure.

“Despite France’s exceptional access to liquidity, a fragmented political environment is weighing on credit metrics by impeding meaningful fiscal consolidation and keeping deficits elevated,” Ken Egan, senior director for sovereigns at KBRA, told Euronews.

France's growth remains modest

France is facing a delicate transition. Growth is slowing, debt is rising, and the window for fiscal consolidation is narrowing ahead of the 2027 presidential election.

While recession risks remain limited, the capacity to correct public finances without derailing activity is increasingly constrained.

GDP growth slowed to 1.1% in 2024 and is estimated at around 0.8% in 2025, according to KBRA. Output is notably weighed down by weak domestic demand, subdued investment, and lingering uncertainty linked to geopolitics and trade fragmentation.

Household consumption has remained cautious despite falling inflation and improving real wages, as savings rates stay elevated.

Investment has also been constrained by the lagged effects of higher interest rates, particularly in construction and other rate-sensitive sectors. The Recovery and Resilience Facility (RRF) and France 2030 programmes are expected to provide support, but the overall impact may be limited without broader reforms.

On the bright side, inflation has fallen sharply in France, offering some relief to households after a prolonged period of price pressures.

Headline harmonised inflation dropped to 0.9% year-on-year in late 2025, well below the European Central Bank’s target and lower than the eurozone average.

This rapid disinflation reflects a combination of regulated energy price adjustments and contained wage dynamics.