France is dropping plans to narrow the deficit this year after the economy cooled faster than expected. "Five percent is no longer an option," Finance Minister Roland Lescure told reporters, adding that the deficit will be above 5% and "We're doing everything we can to keep it as close to 5% as possible."
The budget law had aimed to bring the gap down to 5% of GDP from 5.1% last year. That plan fell apart when France saw no expansion in the first half, skirting a recession.
Lescure cut this year's growth outlook to 0.5%, after lowering it to 0.7% in July from 0.9% in the budget plan. He also said output should rise 1% next year, with that figure given as part of the government's first prediction for 2027. His tone was blunt: "It's fair to say that economic uncertainties have never been as high as they are today - they are international, they are national." He added, "We must recognize that we have no room for maneuver in the budget."
That fiscal plan will take center stage in the coming months, even as opposition lawmakers push back against politically painful spending reductions in the run-up to the April-May presidential election.
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Lescure spoke shortly after Bank of France Governor Emmanuel Moulin described the economy as being in a worrying situation. The broader backdrop is tense: economic strains are stoking investor worries about public finances as the minority government readies to confront a split parliament on the 2027 budget, and opposition parties say they are unwilling to compromise ahead of spring's presidential vote.
Earlier this week, the gap on France's 10 year bonds versus Germany exceeded 90 basis points, the highest since Europe's sovereign debt crisis. Acknowledging the pressure, Lescure pointed out that the US faces even higher borrowing costs. "Investors continue to have confidence in us," he said. "But we must recognize that we're paying more for our debt than we were a year ago."
Bigger deficits, slower growth and pricier debt are a messy mix that tends to make budget talks louder and markets jumpier. If you hold European bond funds or France exposed equities, expect more headline driven swings as Paris hammers out spending and tax choices tied to the 2027 budget.
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