The International Monetary Fund affirmed that the French economy has shown resilience in the face of internal and external shocks, but it faces a more difficult environment, as the repercussions of the war in the Middle East begin to impact economic activity and energy prices rise, warning that these factors will lead to a slowdown in growth and a return of inflationary pressures.

This came in the report of the annual Article IV consultations with France, whose results were approved by the IMF Executive Board on July 17 and published on Wednesday. The Fund forecasts that French economic growth will slow to 0.6 percent in 2026, compared to 0.9 percent in 2025, before gradually recovering to 0.9 percent in 2027 and 1.2 percent in 2028.

The Fund explained that the repercussions of the war in the Middle East have begun to affect the French economy through higher energy prices, which has increased inflation and weakened domestic demand, while geopolitical uncertainty remains one of the most prominent risks threatening growth prospects.

It pointed out that inflation, which fell to 0.9 percent in 2025, is expected to rise again to 2.3 percent this year due to higher energy costs, before gradually declining to 1.7 percent in 2027.

Praise for Energy Crisis Management

The IMF considered that the French government's response to the energy price shock has been appropriate so far, calling for any additional support measures to remain "limited, temporary, and targeted at the most vulnerable groups, while preserving market incentives and containing fiscal costs."

At the same time, the Fund stressed the need to continue fiscal consolidation, amid rising public debt, fiscal deficit, and spending pressures, considering that the upcoming electoral cycle represents an opportunity to develop a multi-year strategy to enhance growth and achieve fiscal sustainability.

The Executive Board urged the French authorities to implement "credible and growth-friendly fiscal consolidation" focused on expenditure rationalization, with the aim of reducing the budget deficit to below 3 percent of GDP by 2029.

Public Debt Continues to Rise

Despite improved fiscal performance during 2025, the Fund expects total government debt to rise to 118.5 percent of GDP in 2026, compared to 115.7 percent last year, and to continue rising to 120.3 percent in 2027 and 121.1 percent in 2028.

It also expects the budget deficit to reach 5.2 percent of GDP in 2026, compared to 5.1 percent in the previous year.

Reforms to Boost Growth

The Fund affirmed that ambitious structural reforms, both at the French and European levels, will be necessary to enhance the economy's resilience and raise growth rates, praising measures aimed at reducing regulatory burdens, stimulating private financing, and supporting innovation and the green transition.

It also recommended continuing labor market reforms by strengthening work incentives, encouraging longer careers, increasing women's participation in the labor market, improving the integration of immigrants, and developing skills in line with the requirements of artificial intelligence and the digital economy.

Financial Sector... Continued Resilience

The report indicated that the French banking sector remains highly resilient, and financial stability risks remain under control due to strong capital and effective regulatory oversight, while calling for continued monitoring of risks related to investment funds and enhancing readiness to face cyberattacks.

Persistent Risks

The IMF warned that risks remain tilted to the downside, noting that continued geopolitical tensions, especially in the Middle East, or a sharp correction in the artificial intelligence sector, or increased political uncertainty ahead of next year's French presidential elections, could further weaken growth.

Conversely, the Fund believes that a reduction in geopolitical tensions and the return of political consensus around ambitious economic reforms, supported by deeper European coordination, would boost confidence and investment and drive the French economy toward stronger growth.

France is the second-largest economy in the euro area after Germany, with a GDP of about $3.3 trillion, while the services sector accounts for more than two-thirds of economic activity. Tourism, advanced industries, aviation, luxury products, and nuclear energy are among the main pillars of the economy.

In recent years, the French economy has faced successive challenges, including the repercussions of the COVID-19 pandemic, the energy crisis after the war in Ukraine, and then the effects of the war in the Middle East and rising energy prices. At the same time, the government faces increasing pressure to contain public debt and the fiscal deficit, while maintaining social and investment spending, as the economy prepares to enter an electoral cycle that may increase the difficulty of implementing fiscal and structural reforms.