The Bank of France has lowered its growth forecast for 2026, now expecting an expansion of just 0.4%, the weakest result since 2012, excluding the effects of the 2020 pandemic. This revised outlook aligns with the National Institute of Statistics and Economic Studies (INSEE), which has noted that the French economy is falling behind its European counterparts. Growth in the first half of the year was weaker than expected, with GDP declining in the first quarter and remaining flat in the second. The slow growth is attributed to weak performance in retail services, ongoing challenges in the construction sector, and the impact of summer heatwaves on agricultural output. These heatwaves are estimated to have reduced growth by 0.1 percentage points. For the third quarter of 2026, the Bank of France forecasts a mere 0.1% growth, although there was a slight rebound in industrial activity in August. This small increase is driven by sectors such as equipment manufacturing, transport goods, and aerospace and defense industries. Exports have performed well, except in agriculture, but their overall contribution to economic growth remains limited. Meanwhile, household consumption is being dampened by rising inflation, which is expected to average 2.3% for the year. Energy price shocks are reducing the purchasing power of households, particularly for workers whose wages are not increasing fast enough to offset rising costs. Real wages are projected to fall by about 0.3% this year, with a possible slight improvement in 2027. INSEE estimates that all households will experience a 0.4% decline in purchasing power this year. Despite these challenges, the Bank of France highlights the resilience of the French economy. The central bank’s economists caution against falling into a self-fulfilling cycle of pessimism and note that while France is growing more slowly than some of its neighbors, it is not necessarily falling behind. Xavier Debrun, the Bank of France’s chief economist, emphasized that other major European economies like Germany and the United Kingdom are expected to grow at a higher rate, around 1%, even under difficult conditions. Looking ahead, the Bank of France expects 2026 to bring only modest growth, but not a year of significant decline. Exports are expected to continue supporting economic activity, while domestic demand, which has been weak in 2026, is projected to strengthen in 2027 and 2028. The labor market is also showing resilience, with the unemployment rate expected to rise slightly to 8.4% by the end of 2026, but possibly fall to 8% by 2028. This remains far from the full employment goals set by President Emmanuel Macron. For 2027, growth projections depend heavily on the trajectory of energy prices, which are influenced by geopolitical factors. The Bank of France anticipates a gradual decrease in hydrocarbon prices, allowing growth to approach its potential at 0.9% in 2027 and 1.2% in 2028. However, if oil prices remain above $90 per barrel and gas prices hover around 50 euros per megawatt-hour, growth could remain stuck at 0.4% in 2027. Inflation is expected to stay high at 2.2%, slightly lower than the projected wage growth. Regardless of these scenarios, the Bank of France does not foresee a decline in France’s borrowing rates on financial markets. Unlike Germany, which is seeing growth supported by its recovery plan, France will not rely heavily on increased public spending to boost its economy. Private investment is likely to be constrained by tighter credit conditions and uncertainty surrounding fiscal policy.