Phoenix 24
The budget assumes recovery, but debt costs and political instability leave little room for error.
Paris
The French government is forecasting economic growth of 1 percent in 2027 as part of a budget designed to reduce the public deficit from 5.4 percent of GDP this year to 5 percent next year. That projection is already being challenged by France’s High Council for Public Finance, which has described the assumption as optimistic.
The budget requires an adjustment effort of approximately €54 billion. The government plans around €25 billion in spending cuts and €18 billion in additional revenue, alongside measures already approved this year. Part of the savings would come from a partial freeze on pensions and family benefits, while additional revenue would be generated through changes to social contribution exemptions, higher local taxes and reductions in certain tax allowances.
Debt servicing is becoming one of the largest constraints. Central government expenditure is expected to increase because of an additional €10.3 billion in debt costs, €6.5 billion in defense spending and €2.8 billion in higher contributions to the European Union budget. Economists warn that these pressures could make deficit reduction considerably harder than the headline targets suggest.
The government assumes an average yield of 4.3 percent on ten year French sovereign borrowing. Market rates have recently risen close to 4.9 percent, creating additional fiscal risk. According to Natixis estimates, a one percentage point increase in interest rates could add roughly €3.4 billion to France’s debt servicing costs in 2027.
Growth assumptions are equally sensitive. Natixis expects GDP expansion of around 0.8 percent rather than the government’s 1 percent. Economists also point to geopolitical instability, higher fuel costs, the aftermath of heat waves and drought, possible food inflation and domestic political uncertainty ahead of the 2027 presidential election.
The political process may prove as difficult as the economic one. France’s fragmented National Assembly means the government still has to find a path for approving the budget. Possible mechanisms include invoking Article 49.3 or using ordinances if parliamentary negotiations reach an impasse, both of which would carry significant political consequences.
The central problem is therefore not whether 1 percent growth is possible. It is how much of France’s fiscal strategy depends on that assumption being correct.
When debt, interest rates and politics all move in the wrong direction at once, even a small forecasting error can become a large budget problem.
Facts that do not bend.