The improving outlook comes despite a shaky budget situation as divided lawmakers struggle to agree on how to rein in the currency bloc’s widest deficit. With time running out to adopt a fiscal plan for next year, France will probably have to rely on emergency legislation to avoid a shutdown.
The central bank has previously warned that uncertainty from an unstable political situation since snap elections in 2024 takes around 0.2 percentage point off economic growth.
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However, recent indicators have shown business and manufacturing are weathering the upheaval surprisingly well. Statistics agency Insee this week forecast robust expansion through the first half of 2026, and said a budget compromise emerging in parliament could be supportive with fewer spending cuts and tax increases than in earlier plans.
Unlike Insee, the Bank of France didn’t develop a scenario for the outcome of budget negotiations. Instead, it based its projections on the initial bill presented by the government, which targeted a sharper decrease in the fiscal gap — to 4.7% of gross domestic product from 5.4% this year.
But the central bank said less fiscal belt tightening would not boost growth because uncertainty about public finances makes households and consumers more hesitant.
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The Bank of France trimmed its inflation forecast for this year to 0.9% from 1% and kept its 2026 projection unchanged at 1.3%. It revised down the 2027 prediction to 1.3% from 1.8%, taking into account a delay in European carbon pricing rules.
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