French growth accelerates during the summer despite political instability

This publication, exceeding the initially anticipated +0,3%, suggests that the second largest economy in the eurozone will surpass the 0,7% growth expected by the government in 2025.

After +0,1% in the first quarter and +0,3% in the second, the carry-over growth, that is to say what annual growth would be if GDP did not evolve at all at the end of the year, is 0,8% at the end of September, indicates the National Institute of Statistics (Insee) in publishing its first estimate on Thursday.

This is better than Germany (0,2%), whose quarterly figures are also expected on Thursday along with those of Italy. Spain, meanwhile, recorded growth of 0,6% in the third quarter, targeting 2,7% for the year.

Economy Minister Roland Lescure hailed "a remarkable performance": "despite political upheavals and international uncertainties, our companies are investing, exporting and moving the country forward."

"The swift adoption of a budget that preserves the confidence of businesses and households will be crucial to maintaining this momentum," he added.

"Solid"

The 2026 budget is being fiercely debated in a National Assembly without a majority, where the threat of a government censure still looms. Discussions are particularly focused on the taxation of the wealthiest individuals.

"Overall, growth is solid," notes Maxime Darmet, economist at Allianz Trade, to AFP.

Before the start of heated budget debates, the economy benefited during the summer from an acceleration of exports (+2,2%), especially in the aeronautics sector, which had been penalized since Covid by supply problems.

For Stéphane Colliac, an economist at BNP Paribas, this strengthening of exports "is only the beginning".

Exports of agri-food products, particularly beverages, have suffered from "trade tensions with China and the United States", according to INSEE.

Furthermore, the European Central Bank's (ECB) cut in key interest rates in response to easing inflation has led to improved investment (+0,4% after 0,0%). This growth is driven by business investment (+0,9%), while household investment, primarily in new housing, has declined (-0,4%).

"Weakest link"

In September, however, INSEE judged the engines of the French economy to be fragile in a context marked by a resurgence of political instability affecting household confidence and consumption, a traditional pillar of growth.

The latter increased moderately by 0,1% in the third quarter, as in the second.

"Consumption remains the weak link in this economy. It's not recovering (...) with a persistently high lack of confidence," analyzes Maxime Darmet. While real wages are rising and savings rates are at their peak, "this ingredient is missing for growth to be established on solid foundations."

The fourth quarter is expected to be less spectacular, according to the economist, who predicts a slowdown coinciding with the return of political instability, after "a period of calm" during the previous two quarters.

For his part, Stéphane Colliac certainly doesn't rule out a potential setback at the end of the year, but he sees reasons to be resolutely optimistic, with the economy's fundamentals remaining quite solid and allowing it to offset the risks. He cites, in particular, multi-factor growth, with a rebound in industrial production that appears to be sustainable.

The government of François Bayrou fell in early September, just a few weeks after the presentation of his government's budget guidelines in mid-July.

Sébastien Lecornu succeeded him on September 9, now at the forefront of defending a budget that initially aimed for an overall effort of around thirty billion euros for 2026.

The government wants to reduce the public deficit to 4,7% of GDP in 2026, after 5,4% in 2025, but would be willing to relax the target to a level "below 5%" to allow for compromises.

In the third quarter, public administration spending remained dynamic, with Maxime Darmet seeing "no sign of budgetary austerity at this stage".

Political uncertainty and the deteriorating state of its public finances have led to France's sovereign rating being downgraded by S&P and Fitch, and placed on negative outlook by Moody's.

Illustrative image of the article via Depositphotos.com.