French Economy Unexpectedly Contracts as Debt Worries Mount — 2nd Update

By Ed Frankl

France's economy shrank in the third quarter, deepening concerns over the government's debt load amid enduring political paralysis.

Gross domestic product, a measure of the goods and services produced in an economy, fell back 0.1% in the three months through September, after stagnating in the second quarter, France's statistics agency Insee said Friday.

Quarterly GDP hasn't grown since the final three months of 2025, having also sunk 0.2% in January through March this year. Economists polled last week by The Wall Street Journal had instead expected the economy to grow marginally in the third quarter.

The parlous state of France's public finances, alongside the deadlock in its fractured parliament, has led to bond yields on the country's sovereign debt soaring to multidecade highs.

France's public debt is close to 120% of GDP, and its government expects the deficit to rise to 5.4% of GDP in 2026, well above the 3% ceiling targeted by European Union rules. Economic contraction will add to worries about how the government can continue on a sustainable footing with such a debt load.

The International Monetary Fund earlier in October downgraded its expectations for French growth this year to 0.4%, from 0.9% in April, and warned that the country needed to get its public finances in order.

The immediate outlook for growth looks bleak as uncertainty mounts. Business activity as measured by purchasing managers' data sank back into contraction in October, according to a survey of firms that also showed the most pessimistic assessment of the French economic outlook in six and a half years.

Investment among households and businesses tumbled in the quarter, with output in the construction sector declining once again, Insee said. Exports also retreated, after picking up in the second quarter.

Business investment has stumbled for much of the year as companies delay spending decisions amid persistent uncertainty, particularly ahead of elections due early next year. The far-right candidate Marine Le Pen is leading the polls to replace President Emmanuel Macron, who is term-limited.

Student protests spiraled into riots earlier this month, further unnerving investors and households. Consumer confidence tumbled in October to a 13-year low.

Household consumption accelerated a little in the quarter, having done some of the legwork in propping up the otherwise downcast French economy even after the war in Iran sent energy prices surging. But that could be hampered as inflation continues to rise, after jumping in October more than expected to reach its highest level since 2023.

The European Central Bank has raised its key interest rate twice this year as it sought to put a lid on the acceleration of energy prices spreading to other parts of the economy. ECB President Christine Lagarde said Thursday that risks to inflation are to the upside, after policymakers chose to keep rates on hold.

The publication of economic-growth data for other European nations and the eurozone as a whole is due later Friday.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

October 30, 2026 04:29 ET (08:29 GMT)