4 September, 2026

France’s fiscal policy enters a critical phase as debt, deficits and yields command attention

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Summary

Key Takeaways

Gradual growth recovery and inflation set to ease in 2027 – France is expected to post GDP growth at 0.6% in 2026 and around 1.0% in 2027. The rebound should be driven by a gradual improvement in domestic demand. The recovery is real, but modest. On inflation, price pressures should remain in 2026, driven by higher oil and gas prices, with spillovers into services, goods and food. Inflation should ease in 2027 as energy prices normalise.
Fiscal position and debt increasingly in focus – Public debt has risen to 118% of GDP, while the deficit remains well above pre-Covid levels at 5.1% of GDP, and will hardly stabilise this year. France can sustain its debt over the medium term, and debt interest payments as a % of GDP remain below those of the US, the UK, and Italy. However a fiscal adjustment will be required in the next three years, as debt would otherwise keep rising and higher bond yields would add pressure to debt dynamics.
The 2027 budget will be important for the market – A draft Finance Bill is expected on 30 September. Markets will focus on whether France begins credible consolidation in the 2027 budget, which must be adopted by the end of 2026. Delaying action may increase the premium investors demand to hold French debt and lead to greater market volatility.
Investment implications – French government bonds are likely to remain volatile amid an uncertain fiscal path. Yields may stay under upward pressure if the 2027 budget fails to deliver credible consolidation, particularly at the long end of the curve. That said, OATs still offer appealing yields and liquidity for investors, which could create opportunities during periods of volatility.
Overall, French debt remains an attractive medium- to long-term investment for bond investors, with yields having returned to high levels for a sovereign with a high-quality rating. However, uncertainty linked to the electoral cycle, the budget approval process and the possibility of foreign investors moving into other markets will likely lead to increased volatility.

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France’s fiscal policy enters a critical phase as debt, deficits and yields command attention

Summary

Key Takeaways

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Read the full article on the Amundi Research center

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