France heads into 2026 with an economy that remains resilient but increasingly constrained by high public deficits and prolonged political deadlock.
While growth is expected to recover modestly as inflation eases and financing conditions improve, rating agencies and banks warn that weak fiscal consolidation and legislative deadlock are now structural features of France’s outlook.
These concerns were underscored when the credit rating agency KBRA downgraded France’s long-term sovereign rating to AA- last week, citing persistently high deficits and a deteriorating debt trajectory. Revising the outlook to stable from negative, the agency warned that without decisive reform and spending restraint, France’s sovereign credit metrics would remain under pressure.
“Despite France’s exceptional access to liquidity, a fragmented political environment is weighing on credit metrics by impeding meaningful fiscal consolidation and keeping deficits elevated,” Ken Egan, senior director for sovereigns at KBRA, told Euronews.
France’s growth remains modest
France is facing a delicate transition. Growth is slowing, debt is rising, and the window for fiscal consolidation is narrowing ahead of the 2027 presidential election.
While recession risks remain limited, the capacity to correct public finances without derailing activity is increasingly constrained.
GDP growth slowed to 1.1% in 2024 and is estimated at around 0.8% in 2025, according to KBRA. Output is notably weighed down by weak domestic demand, subdued investment, and lingering uncertainty linked to geopolitics and trade fragmentation.
Household consumption has remained cautious despite falling inflation and improving real wages, as savings rates stay elevated.
Investment has also been constrained by the lagged effects of higher interest rates, particularly in construction and other rate-sensitive sectors. The Recovery and Resilience Facility (RRF) and France 2030 programmes are expected to provide support, but the overall impact may be limited without broader reforms.
On the bright side, inflation has fallen sharply in France, offering some relief to households after a prolonged period of price pressures.
Headline harmonised inflation dropped to 0.9% year-on-year in late 2025, well below the European Central Bank’s target and lower than the eurozone average.
This rapid disinflation reflects a combination of regulated energy price adjustments and contained wage dynamics.
Politics hinders fiscal execution
A key constraint on fiscal progress has been France’s increasingly fractured political landscape.
President Emmanuel Macron’s second term has seen a series of budgetary impasses, the loss of an absolute majority in parliament, and mounting difficulty in passing key pieces of legislation.
Multiple no-confidence votes and the frequent use of constitutional tools have underscored a deeper structural deadlock in policymaking.
Efforts to advance fiscal reforms, including the contentious 2023 pension reform, have been delayed or suspended as the government seeks fragile parliamentary support.
The temporary shelving of pension measures, originally expected to generate €11bn in annual savings by 2027, illustrates the cost of these political compromises.
Adjustments to the reform are now expected to deliver only €100mn in savings in 2026.
KBRA’s Egan warned that uncertainty over policy direction is now “adding a premium to French sovereign debt”, reflecting rising investor caution. He added that while episodes of limited political cohesion may emerge, “the broader picture remains one of persistent fragmentation that shows little sign of easing and could yet intensify”.
Public finances remain the central vulnerability
The International Monetary Fund predicts that the French debt-to-GDP ratio will rise from around 116% in 2025 towards nearly 130% by 2030, diverging from the consolidation paths seen in much of the eurozone.
Rising interest payments are compounding the fiscal burden. The French Treasury expects debt servicing costs to surge to €59.3bn in 2026, up from €36.2bn in 2020.
France also continues to run a primary budget deficit, projected at 3.4% between 2026 and 2030, undermining its ability to stabilise the debt trajectory.
“Rising funding costs and mounting spending pressures imply that meaningful consolidation will require a sustained multi-year effort,” KBRA warned in its report.
While government revenue remains high at over 51% of GDP, scope for further increases is limited, given France already ranks among the OECD countries with the highest tax-to-GDP ratios.
At the same time, structural pressures on spending, particularly in pensions and defence, are expected to persist.
Strong market access offsets near-term risks
Despite these weaknesses, KBRA emphasises that France retains exceptional financing flexibility. French government bonds benefit from deep liquidity, a diversified investor base, and the country’s core status within the eurozone.
These factors continue to support smooth market access even amid heightened political uncertainty.
For KBRA, this balance between strong market access and weak fiscal fundamentals defines France’s outlook heading into 2026.
While liquidity reduces near-term risks, the agency warns that without sustained fiscal consolidation and greater political stability, France’s debt burden is likely to remain on an upward trajectory, constraining policy flexibility over the medium term.
