GDP falling, inflation rising: a less than encouraging mix for the French economy

French gross domestic product (GDP) contracted by 0,1% in the first quarter compared to the last quarter of 2025, according to detailed results from the National Institute of Statistics and Economic Studies (Insee). The institute had initially announced zero growth from January to March.

According to INSEE, this decline appears to be due more to causes internal to France than to the war in the Middle East, which began on February 28.

Both domestic demand and foreign trade weighed on growth in the first quarter, and only changes in inventories mitigated the decline in GDP.

"This is a bad surprise," after growth of 0,2% in the fourth quarter of 2025 and 0,9% for the year 2025, acknowledged Dorian Roucher, head of the economic forecasting department at INSEE, during a press briefing.

"There are sectoral surprises, which we can assume are one-off," such as "the very bad figures on housing renovation: it is very rare for this sector to fall so much," he tempered.

"Vigilant" government

Another indicator published Friday by INSEE showed that inflation continued to rise in May, reaching 2,4% year-on-year, after 2,2% in April, driven by rising energy prices due to the war in the Middle East. These prices increased by 16,8% year-on-year in May, following a 14,3% rise in April.

As for household consumption expenditure, it fell in April, both month-on-month (-0,5%) and year-on-year (-0,4%), weighed down by the decline in spending on fuel, gas and electricity.

These various figures revive fears for the French economy, particularly that of a technical recession, marked by two consecutive quarters of decline in GDP.

However, according to Dorian Roucher, "the most likely outcome at this stage is still not a further decline in GDP" in the second quarter. But we "can expect the shock to spread" throughout the economy, he warned.

Economy Minister Roland Lescure, who in recent days had denounced the "doomsayers" announcing a recession, reaffirmed on Friday that the government "remained vigilant, without giving in to alarmism".

Inflation "remains limited and generally contained, especially compared to our European neighbors," and growth has suffered "from several cyclical headwinds and the late adoption of the budget," he argued.

"Mixed signals"

But some economists are less optimistic. For Mathieu Plane, deputy director of the analysis and forecasting department at the OFCE (French Economic Observatory), "the risk of recession is now quite high." He believes the figures published on Friday are "worrying."

Less alarmist, Fabien Bossy, chief economist for France at Société Générale CIB, believes that the GDP figures "send mixed signals".

"This decline should be put into perspective; it may be the counterpart to a somewhat exaggerated acceleration in the middle of 2025," he points out. But "it is clear that growth in 2026 will struggle to exceed that of 2025," he continues.

Stéphane Colliac of BNP Paribas also puts things into perspective. For him, the decline in GDP in the first quarter is linked "mainly to exceptional effects, notably the drop in Airbus exports in the first quarter."

"In the second quarter, we don't think it would cause a recession, because these exceptional effects of the first quarter will correct themselves," he explains.

In its latest economic outlook published in March, INSEE predicted growth of 0,2% in both the first and second quarters.

Its new note will be published in mid-June and the first estimate of second-quarter GDP will be released on July 30.

Illustrative image of the article via Depositphotos.com.