France's central bank reduced its economic growth forecast for 2026 to 0.5% from a previous estimate of 0.9%, citing a weak first quarter and rising energy costs linked to the Middle East conflict.
The Bank of France announced the downgrade on Tuesday, pointing to an unexpected 0.1% contraction in the first quarter and increased global energy prices following the outbreak of the Iran war in late February.
The central bank based its projections on oil futures data from May 21, which did not account for recent Middle East developments, including a peace agreement that has pushed oil prices to three-month lows.
Economic growth is expected to remain flat in the current quarter, though the Bank of France's monthly survey of 8,500 companies showed business executives reported improvement in June compared with May.
The central bank raised its 2027 growth forecast to 0.9% from 0.8% and projected 1.2% growth in 2028 as consumer spending and business investment recover.
Inflation is now forecast to average 2.5% in 2026 before declining to 1.7% in both 2027 and 2028 as energy prices normalize. The March forecast had projected inflation of 1.7% in 2026, 1.4% in 2027, and 1.6% in 2028.
High inflation is reducing household purchasing power this year and limiting consumption, which is expected to rebound next year as price pressures ease.
The central bank also presented alternative scenarios that showed weaker growth and higher inflation than its baseline forecast due to heightened geopolitical uncertainty.
