Debt, deficits and the yield spread
The difficulty of tackling France's high level of government debt and deficits has accompanied political disaffection over the last two years. That malign interaction has intensified recently. Ever since President Macron’s centrist Renaissance party did poorly in European elections in June 2024, successive prime ministers (there have been three – Michel Barnier, Francois Bayrou and, now, Sébastien Lecornu) have been unable to take effective action. The 10-year yield spread between France and Germany remains elevated and rose sharply in late September and into October: over 140 basis points on 5 October, more than 20 times the spread in the first ten years of the euro’s existence. Debt servicing costs are likely to be €65bn this year, higher than defence spending according to Finance Minister Roland Lescure (FT, 12 September). He sees GDP growth this year at just 0.5 per cent, half the level when the budget was first drafted last autumn (although that is in line with the IMF’s latest forecast). Following the third quarter GDP report (a contraction of 0.1% compared to Q2) he commented that the economy was at a standstill and needed a restart.
The IMF sees the budget deficit, 5.4% of GDP in 2026, staying above 4% until 2030. Government debt rises steadily from 118% to 123% of GDP over that period.
Demographics and growth
On a more optimistic note, France’s demographics are not as concerning as in many G20 economies The population is expected to continue growing over the next 25 years, and not ageing too rapidly. This means that potential GDP growth is slightly higher in France (1.2% p.a. over the next 15 years) than in other large eurozone economies. GDP grew slightly below this potential rate (0.9%) in 2025 and the IMF's October 2026 reference forecast sees growth under 1% in both 2026 and 2027.
Inflation
French core inflation is around 1.5% but headline, all items inflation has now moved over 3%. Broad money growth remains weak, however, and private credit sector credit continues to decline relative to GDP. These trends suggest any inflationary pressure will be limited.
Governance and Competitiveness
France scores well on corruption perceptions (although its score and rank have dropped in the last few years) but competitiveness, innovativeness and the Heritage Foundation's freedom index all put France around the middle of the G20 ranking. One structural strength is France’s low carbon emissions, largely due to the country’s high use of nuclear power to generate electricity.
Currency and external position
The fact that the euro is overrvalued on the two Big Mac measures suggests some competitive pressures on French industry may exist. Even so, France’s current account is expected to be close to balance in 2026 and, indeed, up until the 2030s. High net foreign liabilities are, however, still a source of vulnerability, especially when France needs to finance large budget deficits.