The International Monetary Fund affirmed that the French economy has shown resilience in the face of domestic 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 slower growth and a return of inflationary pressures.

This came in the Article IV consultation report with France, whose results were approved by the IMF's Executive Board on July 17 and published on Wednesday; the Fund forecast that French economic growth would slow to 0.6 percent in 2026, compared with 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, leading to increased inflation and weakened domestic demand, while geopolitical uncertainty remains one of the most prominent risks to growth prospects.

It noted 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 the fiscal cost.'

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

The Executive Board urged the French authorities to implement 'credible and growth-friendly fiscal consolidation' focused on spending rationalization, aiming to reduce the budget deficit to below 3 percent of GDP by 2029.

Public debt continues to rise. Despite an improvement in fiscal performance in 2025, the Fund forecast that total government debt would rise to 118.5 percent of GDP in 2026, compared with 115.7 percent last year, and continue to increase to 120.3 percent in 2027 and 121.1 percent in 2028.

It also forecast that the budget deficit would reach 5.2 percent of GDP in 2026, compared with 5.1 percent the previous year.

Reforms to boost growth. The Fund affirmed that ambitious structural reforms, at both the French and European levels, will be necessary to enhance economic 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 reform 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 demands of artificial intelligence and the digital economy.

Financial sector... sustained resilience. The report noted that the French banking sector remains highly resilient, and financial stability risks remain under control thanks to strong capital levels and effective supervision, while also calling for continued monitoring of risks related to investment funds and enhancing preparedness for cyberattacks.

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

In contrast, the Fund believed that an easing of geopolitical tensions and a return of political consensus on ambitious economic reforms, supported by deeper European coordination, would boost confidence and investment and drive the French economy to stronger growth.

France is the second-largest economy in the eurozone 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 goods, 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 make it more difficult to implement fiscal and structural reforms.