Growth limited to 0,4% in 2026: INSEE warns of the slowdown of the French economy

The French economy is projected to grow by only 0,4% in 2026, according to the economic outlook published on September 10 by the National Institute of Statistics and Economic Studies (Insee). The institute had previously forecast a 0,7% increase in gross domestic product (GDP), a figure also supported by the government until now.

This revision comes after a particularly weak first half of the year. French GDP fell by 0,2% in the first quarter, before remaining stable in the second.

“Unlike its neighbors, the French economy has fallen behind. Unlike the rest of Europe, activity slowed this winter and remained flat in the spring. This is a surprise that we had not anticipated,” acknowledged Dorian Roucher, head of the economic forecasting department at INSEE.

Growth significantly lower than that of neighboring countries

France's economic activity is less dynamic than that of the main European economies. During the first half of 2026, GDP grew by 0,4% and then 0,3% in Germany, by 0,3% and then 0,2% in Italy, and by 0,6% and then 0,7% in Spain.

The United Kingdom also recorded growth of 0,6% in the first quarter and 0,4% in the second. For the year as a whole, the growth of the French economy would thus be about three times less than that of its neighbors in the eurozone or the United Kingdom, according to INSEE.

Public works penalized by the municipal election cycle

The Institute identifies several causes for this slowdown. Private consumption remains sluggish, while public consumption is growing less rapidly than in Germany or Spain. Investment, for its part, is affected by the decline in local public spending.

For the construction sector, INSEE (the French National Institute of Statistics and Economic Studies) particularly highlights a "sharp reversal" in activity in public works, which it links to the municipal election cycle. As elections approach, the slowdown in projects undertaken by local authorities is weighing on order books and the output of public works companies.

This decline should, however, ease in the autumn. Furthermore, INSEE distinguishes between the temporary effects of heatwave episodes: its analyses highlight a short-term impact on public works, but no significant effect on long-term building production.

Heat waves would cost 0,1 percentage point of growth

The summer heatwaves are thought to have had a greater impact on the French economy than on those of neighboring countries. Their cost is estimated at 0,1 percentage point of growth for the whole of 2026, mainly due to the decline in agricultural production.

The INSEE also points to a labor market that is more deteriorated than elsewhere in Europe, with rising unemployment and sluggish wages. Furthermore, the state of public finances limits the national budget's ability to support economic activity.

A limited recovery is expected at the end of the year.

The French economy is expected to return to modest growth in the second half of the year. INSEE forecasts GDP growth of 0,1% in the third quarter and 0,2% in the fourth.

Some of the obstacles could lessen in intensity: most of the impact of the heat waves on agriculture has already been accounted for, the decline in production in public works should slow down in the autumn and the business climate has partially recovered after its deterioration following the outbreak of war in the Middle East.

Purchasing power and investments trending downwards

Inflation is expected to continue rising, reaching 2,9% by the end of the year, compared to 2,4% in August. The French National Institute of Statistics and Economic Studies (INSEE) anticipates, in particular, a temporary increase in fresh vegetable prices.

Due to inflation and the decline in salaried employment, household purchasing power is expected to decrease by 0,4% over the year. This trend will affect a large portion of the population and limit the growth in household consumption to 0,3%.

Households would be forced to draw more heavily on their savings. Their savings rate would fall to 17,3% of gross disposable income in 2026, after 17,8% in 2025.

Business investment would decline by 0,3%. Household investment, which includes their real estate spending, would decrease by 1,3%, prolonging the difficulties encountered by the housing and construction markets.

Finally, INSEE emphasizes that these forecasts remain surrounded by uncertainties, particularly regarding the final consequences of the heat waves on third-quarter activity and the evolution of the situation in the Middle East.

Image illustrating the article via Depositphotos.com.