France's economy stagnated in the second quarter of 2026, according to final GDP figures, with output unchanged from the previous quarter and well short of the +0.2% quarter-on-quarter preliminary estimate. The economy had contracted 0.2% in the first quarter.

The final quarterly accounts from national statistics agency INSEE revise away the modest growth signaled by the preliminary release. Combined with the first-quarter contraction, the flat reading leaves output slightly below its level at the end of 2025. As the euro area's second-largest economy, France's outturn feeds directly into the currency bloc's overall growth picture.

On an annual basis, GDP expanded 0.5%, below both the +0.7% expected and the prior reading of +0.9%.

The report shows a sharp rebound in exports helped stabilize growth, but household purchasing power weakened further and savings fell markedly as inflation accelerated.

Domestic demand mixed

Household consumption returned to growth during the quarter, rising 0.3% after a 0.3% decline in Q1. Investment remained a drag on activity, with gross fixed capital formation falling 0.3%, reflecting continued weakness in market services investment and a further decline in construction. Government consumption provided modest support, increasing 0.4%.

External trade the main positive driver

The main support came from external trade. Exports rebounded 2.9% after a 3.0% decline in the previous quarter, boosted in particular by the aeronautics sector, one of France's largest industrial export categories, where large-ticket deliveries can swing quarterly trade figures. Imports also recovered, but at a slower pace, rising 1.1%. As a result, net trade contributed 0.6 percentage points to GDP growth, offsetting weakness elsewhere in the economy.

That support was largely counterbalanced by inventory movements, which subtracted 0.7 percentage points from growth after having added 0.9 percentage points in the first quarter.

Inflation erodes household purchasing power

Despite household disposable income increasing 0.5% in nominal terms, stronger consumer price growth eroded purchasing power. Household prices accelerated by 1.0% during the quarter, resulting in a 0.5% decline in real disposable income and a 0.6% fall in purchasing power per consumption unit. Faced with declining real incomes, households reduced their savings rate to 17.2% from 17.9% in the previous quarter as consumption recovered. That composition means the quarter's consumption growth was funded by saving less rather than by real income gains, making the durability of the consumption upturn a key question for the third-quarter accounts.

Labour market subdued, corporate margins steady

Labour market indicators remained subdued. Total hours worked declined for a second consecutive quarter, falling 0.1%, while overall employment was broadly unchanged. Small gains in self-employment offset continued weakness in salaried jobs.

Corporate profitability showed resilience despite higher energy costs. The profit margin of non-financial corporations held steady at 31.5% of value added, unchanged from the first quarter. Rising energy prices weighed on margins through a deterioration in the terms of trade, but this was largely offset by lower real wage costs.

Public finances showed little change during the quarter. The general government deficit remained at 5.1% of GDP, well above the European Union's 3% of GDP reference value, with higher tax and social contribution revenues broadly matched by increased spending on social benefits and interest payments.

Source: ForexLive