French economy 'at a standstill' as budget uncertainty raises recession risk

A poor performance. French gross domestic product fell by 0. 1% in the third quarter, the National Institute of Statistics and Economic Studies (Insee) said on Friday, after stagnating in the second quarter and a 0.

2% decline in the first. It is another blow for the government, coming as France's borrowing costs climbed above 5% on the financial markets last week and social tensions remain explosive, on the eve of another nationwide day of mobilisation against the high cost of living and in support of young people's demands. This fall in activity effectively puts the euro area's second-largest economy on the brink of recession.

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

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

"This scenario was already conceivable before the recent budget turbulence and the collapse of the bond market", he added. "We will hit the wall"The government has taken the hit and is insisting on the need to have the 2027 budget adopted on time in a parliament where it has no 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 "turnaround" budget is not passed. Should parliamentary debates fail, the government is not ruling out using 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 would be to resort to ordinances, a procedure that has never been used to pass a budget since the Fifth Republic was established in 1958. "The main risk to 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" in that it would not, "through some kind of leverage effect, miraculously revive activity in the short term". "On the contrary, a fiscal adjustment plan generally tends to weigh on growth immediately.