French growth outlook cut, inflation forecast raised

The Banque de France has published its June 2026 macroeconomic projections for France, revising down GDP growth to 0.5 percent and raising headline inflation to 2.5 percent for the year. The outlook is dominated by uncertainty from the Middle East conflict.

Baseline: Slower growth, higher prices

Under its baseline scenario, the Banque de France projects French GDP to grow by 0.5 percent in 2026, a downward revision of 0.4 percentage point from its March forecasts.

Growth is then expected to rebound to 0.9 percent in 2027 and 1.2 percent in 2028, primarily driven by a recovery in private domestic demand, including household consumption and business investment.

This revision reflects less resilient economic activity in Q1 2026 and a sluggish Q2, compounded by higher oil prices than previously forecast.

Headline inflation (HICP) is now forecast to reach 2.5 percent in 2026, an upward revision of 0.8 percentage point, mainly due to rising energy prices and their indirect effects on sectors like air travel and food.

Inflation is then projected to ease to 1.7 percent in both 2027 and 2028 as energy prices moderate.

Core inflation, excluding energy and food, is expected at 1.6 percent in 2026, rising to 2.1 percent in 2027 due to delayed pass-through of energy costs and wage increases, before falling to 1.8 percent in 2028.

The government deficit is forecast to deteriorate slightly in 2026 without additional measures, with the public debt ratio projected to increase towards 122 percent of GDP by the end of 2028, diverging from the euro area average.

Geopolitical shadows and alternative paths

The Banque de France's projections are framed by considerable uncertainty, particularly from the ongoing Middle East conflict.

The baseline scenario, based on futures market assumptions from May 21, 2026, anticipates a temporary surge in hydrocarbon prices, assuming substantial progress in US-Iran negotiations and a cessation of hostilities this summer.

Under this, oil prices are expected to rise to USD 112 per barrel in Q2 2026 before stabilizing around USD 77 from 2028.

Gas prices are projected to reach EUR 48 per MWh in Q2 2026, then gradually drop to EUR 26 per MWh by end-2028.

The BDF also presents a milder scenario with a faster decline in energy prices, and two more adverse scenarios reflecting pessimistic market expectations.

These alternative scenarios are consistent with those published by the European Central Bank for the Eurosystem on June 11, ensuring a coordinated approach to forecasting under uncertainty.

Fragile recovery, persistent risks

These projections underscore France's persistent vulnerability to external shocks, particularly energy price volatility and geopolitical tensions.

The downward revision for growth and upward for inflation paints a challenging picture, suggesting that domestic demand alone may struggle to offset these headwinds.

Furthermore, the rising public debt ratio, diverging from the euro area average, signals a structural fiscal challenge that could constrain future policy options.