French budget faces tight constraints amid stagnant growth

France simultaneously faces weaker growth, political paralysis and worsening public finances. Prime Minister Sebastien Lecornu has proposed 54 billion euros in savings for the 2027 budget, but his minority government will have difficulty getting such measures passed.

Public debt is expected to reach 117% of GDP this year, while the budget deficit has widened beyond the government’s targeted 5% of GDP. These dynamics continue to deteriorate even as countries such as Italy and Greece – worst-hit by the debt crisis more than a decade ago – continue to improve their fiscal positions.

French growth has been stagnant as exports have weakened. Metrics of France’s long-term debt sustainability are approaching levels last seen during the eurozone sovereign debt crisis. The yield on 10-year French benchmark government debt has widened against German bunds. Meanwhile, fund-flow data from EPFR shows bond outflows are gathering pace.