France faces recession risk after 0.1% GDP drop

France’s GDP fell 0.1% in the third quarter, Insee said Friday, after stagnating in the second quarter and contracting 0.2% in the first.

The data put the euro area’s second-largest economy close to recession, while 10-year French bond yields stood at 4.9% Friday, down from above 5% last week.

The figures sharpen the political and market pressure on a government trying to pass the 2027 budget without a parliamentary majority. Economy and Finance Minister Roland Lescure told Franceinfo the economy was “at a standstill” and warned France “will hit the wall” if the “turnaround” budget fails.

Jérémie Peloso, chief strategist for Europe at BCA Research, told Euronews: “France is very likely to experience a technical recession in the coming quarters.” A technical recession means two consecutive quarters of declining output; France has already recorded two quarterly contractions in 2026, separated by a flat second quarter.

Peloso said the risk was visible before the latest budget dispute and bond-market selloff. Inflation also rose to 3.4% year on year in October from 3.1% in September, its highest level since January 2024, Insee said.

Bond markets remain a central constraint. On Friday, the 10-year French government bond yield was 17 basis points below its Oct. 22 peak, while the French-German spread, the gap between the two countries’ borrowing costs, was around 155 basis points.

Peloso wrote in a BCA client note seen by Euronews that Thursday’s European Central Bank meeting, which he described as “relatively free of surprises,” likely contributed to the easing. ECB President Christine Lagarde declined to comment on France’s situation.

The budget fight is unfolding in a fragile political climate. Atlas360 reported on Oct. 26 that former Prime Minister Edouard Philippe had lost ground in recent presidential polling, while Marine Le Pen maintained her lead amid shifting support among centrist and right-wing candidates.

The government has not ruled out using Article 49.3 of the constitution, which lets a bill pass without a vote unless lawmakers approve a no-confidence motion. Another option would be ordinances, a route that has never been used to pass a budget since the Fifth Republic began in 1958.

Jérôme Mathis, a Paris-Dauphine University economics professor, told Euronews that passing a budget would not be “decisive” for short-term activity. “On the contrary, a fiscal adjustment plan generally tends to weigh on growth immediately,” he said.

Mathis said the larger issue is whether investors gain medium- and long-term visibility on France’s public finances. “The main risk to the French economy is not the absence of a budget. It is the lack of visibility over the trajectory of public finances,” he told Euronews.

He also said an ordinance would not be “an obvious economic solution,” because markets weigh not only the speed of decisions but also their “legitimacy” and “durability.”

Source: news article, Euronews, Oct. 30, 2026