France's potential growth still affected by Covid crisis
France's potential GDP still bears slight negative effects from the Covid crisis in level terms, but its pre-crisis growth rate returned by end-2025. These effects stem from long-term productivity losses, partly offset by greater labour force participation.
A persistent gap from pre-Covid trend
France's potential GDP remains approximately 0.7% lower than its pre-Covid trend trajectory, despite its growth rate having returned to pre-crisis levels by late 2025.
The Banque de France estimates that the bulk of this gap, 0.5 percentage points, originates from the non-market component of potential GDP.
The remaining 0.2 percentage points are attributed to market sectors, where two opposing factors are at play: a significant 2.6% increase in the labour force and market sector employment since 2022, contrasted with a 2.7% decline in potential market sector productivity.
This productivity decline is partly linked to the strong employment growth, including new apprenticeships and the recruitment of lower-skilled workers, which has weighed on aggregate productivity through a labour composition effect.
Other contributing factors include negative impacts of lockdowns on innovation and skills acquisition, alongside an unexplained residual of 0.3 percentage points, possibly due to a rise in labour-intensive activities or self-employment with short hours.
Estimating unobservable potential
Potential GDP represents an economy's maximum output without inflationary pressures or strains on production factors.
Central banks closely monitor this variable, as the 'output gap' (deviation between actual and potential GDP) serves as a leading indicator for domestic inflationary or deflationary pressures.
As potential GDP is unobservable, it must be estimated, typically using a production function that links GDP to productive capital, total hours worked, and factor productivity.
The Banque de France applies this function to estimate the potential value added of the French economy's market sectors, while treating the non-market share of GDP (including services, taxes) separately.
These components are then aggregated to form the overall potential GDP, with statistical filters used to extract potential trajectories for hours worked and productivity.
Demographic headwinds and AI hopes
The study highlights a persistent drag on France's potential growth, underscoring the long-term scarring effects of the pandemic.
While increased labour force participation offers a partial offset, the underlying productivity challenges remain significant, with demographic factors poised to further reduce labour's contribution.
Future growth hinges precariously on the widespread adoption of artificial intelligence and geopolitical stability, rather than robust structural drivers.
For 2026–28, most institutions forecast France's potential growth between 0.9% and 1.2%, with considerable uncertainty surrounding these estimates.