French GDP shrinks 0.1% as economy nears recession and budget doubts grow

A setback. France's gross domestic product fell by 0. 1 % in the third quarter, the National Institute of Statistics and Economic Studies (Insee) announced on Friday, after stagnating in the second quarter and a 0.

2 % decline in the first. Another blow for the government, coming as France's borrowing rates climbed above 5 % on financial markets last week and the social climate remains explosive, on the eve of a new nationwide day of mobilisation against the high cost of living and in support of young people's demands. This drop in activity effectively places the eurozone's second-largest economy on the brink of recession.

At the same time, inflation accelerated to 3. 4 % year on year in October, compared with 3. 1 % in September.

This is its highest level since January 2024, according to Insee. The poor figures do not come as a surprise to experts, given a particularly unfavourable macroeconomic context. "France is very likely to experience a technical recession over the coming quarters", says Jérémie Peloso, chief strategist for Europe at BCA Research, speaking to Euronews.

"This scenario was already conceivable before the recent budget turbulence and the rout in the bond market", he adds. "We will hit the wall"The government has been shaken and is insisting on the need to have the 2027 budget adopted on time, in a parliament without a majority. Appearing on Franceinfo, Economy and Finance Minister Roland Lescure described the French economy as "at a standstill".

He also warned that the country "will hit the wall" if the "recovery" budget is not adopted. If parliamentary debates fail, the government is not ruling out resorting to article 49. 3 of the Constitution, which allows a bill to be adopted without a vote unless a motion of no confidence is passed.

Another possibility is resorting to ordinances, a procedure that has never been used to pass a budget since the establishment of the Fifth Republic in 1958. "The main risk for the French economy is not the absence of a budget"According to Jérôme Mathis, professor of economics at Paris-Dauphine University and author of the blog "Finance at the heart of our lives" (source in French), adopting a budget is not "decisive", since it would not, "through some sort of leverage effect, miraculously restart activity in the short term". "On the contrary, a budget adjustment plan generally tends to weigh on growth in the immediate future".