France’s economic outlook has weakened significantly, with the country’s national statistics office INSEE cutting its forecast for 2026 economic growth to just 0.4%, down from its previous estimate of 0.7%. The new projection is also well below the 0.9% growth recorded in 2025.

The slowdown is being driven by weak household purchasing power, cautious consumer spending and declining business investment. INSEE expects household purchasing power to fall by around 0.4% this year, while business investment is projected to decline by 0.3%.

Inflation is also becoming a renewed concern. INSEE expects inflation to rise toward the end of the year as higher energy costs and the effects of the Middle East conflict put additional pressure on prices. The agency also forecasts that France could lose around 52,000 private-sector jobs, pushing unemployment to approximately 8.6% by the end of 2026.

The weaker economic outlook creates additional difficulties for the French government as it prepares its budget plans. Lower growth means weaker tax revenues and makes efforts to reduce the country’s fiscal deficit more challenging.

France is also facing pressure from higher energy costs. The French government has introduced economic support measures in response to the Middle East crisis, including assistance for workers who travel long distances because of increased fuel costs.

The economic situation comes as the European Central Bank has raised interest rates by 25 basis points, citing persistent inflation pressures linked partly to the Middle East conflict and higher energy prices.

With growth weakening while inflation and unemployment risks remain elevated, France faces a difficult economic environment heading into the final months of the year.