(Aug 28): France’s economy unexpectedly failed to grow in the first half (1H), only narrowly avoiding recession and undermining the government’s effort to get a grip on public finances.

Output shrank 0.2% in the first quarter and stagnated in the three months through June, revised data released on Friday by statistics agency Insee showed. It had previously estimated a 0.1% decline in January through March, followed by expansion of 0.2%.

The further deterioration of the eurozone’s second-biggest economy adds to headwinds for a government that’s already struggling to contain a swollen budget deficit. A global bond market selloff has exacerbated those challenges over the summer, driving up France’s borrowing costs. 

Investors are also increasingly focusing on the presidential election campaign that is feeding concerns over economic and fiscal policy when Emmanuel Macron’s decade in power comes to an end in May.

The French 10-year yield premium over Germany, a gauge of risk, has climbed through August as focus on upcoming budget negotiations and the campaign starts to mount. It was steady at 85 basis points on Friday, only slightly below its highest closing level since 2012.

The French government has already warned that slower growth will make it difficult to meet its target of reducing the budget deficit to 5% of economic output this year from 5.1% in 2025. 

But even its revised forecast for an expansion of 0.7% looks difficult to meet after Friday’s revisions. According to statisticians from Insee, it would require an acceleration to around 0.5% growth in both of the two remaining quarters of the year.

Insee said the revisions to GDP were driven in part by a revised assessment of how heat waves have affected agricultural output and updated information on prices in the services sector.

Speaking at a business conference in Paris, Finance Minister Roland Lescure said weakness in agriculture could affect the third quarter, too.

“It’s an impact that is absolutely terrifying, huge,” he said.

The Insee report showed investment declined throughout the 1H of 2026. While consumer spending and exports rebounded in the second quarter, it was insufficient to drive growth as inventories fell.

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