Natural disasters, fires, heat waves and drought are hitting France hard this year. It is not yet possible to assess the short-term financial consequences and the investments to be made in the future, but this should not distract attention from the current economic challenges and the responses that need to be provided to them, particularly in the run-up to the next presidential election.
INSEE has published its estimate of growth in the 2nd quarter (0%), i.e. a timid rebound compared to the slight decline observed in the 1st quarter (-0.2%), which prevents France from entering a recession. But these differences are so small that it is illusory to consider this figure as significant and sustainable progress. The growth acquis in the middle of the year is therefore 0.3% and the government will not have to revise its forecast for the current year by +0.7% in the immediate future. The Banque de France has just published a slightly lower figure for the year (+0.6%).
The good news, and it is rare, is that year-on-year inflation in August held up and reached 2.4% year-on-year, below the European average. In the context of a global energy crisis, thanks to the very high share of nuclear power in electricity production, companies and households have not had to suffer as significant increases as in their neighbours. But the heavy consequences for agricultural production of the current drought and certain fires will inevitably have an impact on prices in the coming months.
Conversely, there has still been no improvement in foreign trade, which was the main justification put forward for the supply-side policy that has been in practice for more than ten years now and whose implementation has contributed heavily to the accumulation of public deficits and the increase in debt. Over the first half of the year, the deficit reached nearly 34 billion. Excluding energy and military equipment, it represented 22 billion, an increase of 2.8 billion. Conversely, the balance of services showed a surplus of 29 billion, an increase of 7 billion, which allows the current account balance to be close to balance. France's external position therefore does not pose a threat to the euro.
The employment situation continues to worsen and the unemployment rate reached 8.3% at the end of June. It had fallen to 7.1% on the eve of the Covid-19 epidemic. The objective of bringing it down to 5% by the end of his term of office that the President of the Republic had set himself is therefore out of reach. This had constituted, along with reindustrialisation and the improvement of trade, one of the compasses of public action. It is clear that the results are not there.
The situation has been made even more worrying by a heavy deficit in public finances that successive governments have not managed to correct. The political instability of the last two years has not made things easier, nor has the gradual increase in interest rates that public securities have to bear. But no credible trajectory accompanied by relevant measures acceptable to the population has been proposed, the temptation being great to put this issue back on the agenda of the government that will be formed after the presidential election, which will also have to provide the essential answers to the challenges of the climate disasters that have just occurred.
The state deficit alone for the first six months amounts to 107 billion, up 6 billion. In 2024, the state had been unable to pass laws reducing public deficits for 2025 to 4.7% of GDP, in line with the objective of returning to 3% before 2030. The next government was satisfied with a figure of 5.1% and then 5% for 2026. There is no guarantee that this already very modest objective will be achieved. Among the causes of these slippages is the increase in the debt burden following increases in interest rates. At 10 years, France borrows at around 4% compared to rates between 1 and 2% three years earlier.
But this explanation is insufficient. The State does not pay interest in the year of issuance, but in the following years. The increase that will be observed in 2026 is the result of the increase in debt and, which is never mentioned, the cost of repaying index-linked securities. Thus, in March, this charge represented 2 billion. In July 2027, the bill will reach at least 7 billion for a bond issued in 2011, indexed to euro area inflation and bearing an interest rate of 1.85%. The burden is even heavier since inflation in the euro area is higher than French inflation.
France's excessive indebtedness is not a threat to the country or to the euro zone. It reflects the misuse of public money that must be urgently remedied because it weakens the country's position within the European Union, which prevents it from opposing provisions that are profoundly unfavourable to it, such as in the energy sector. But this description would be incomplete if we omitted an unprecedented phenomenon: in a period of quasi-economic stagnation, the profits of French banks and large companies have reached record levels.
The CAC40 index reached its all-time high and the published net profits of 38 companies out of the 40 in the index reached 75 billion euros, including 20 billion for banks. The case of the French financial market is not isolated and Wall Street is cited, which is doing much better with exceptional capitalizations. But it is a much more speculative market with brutal corrections. In France, the rise in equities and the increase in dividends that will accompany it will result in an increase in inequality, both in terms of wealth and income, precisely at a time when growth, and therefore the purchasing power of employees, is stagnating.
The success of French banks and large companies is excellent news because, contrary to what we hear too often, it reflects their ability to innovate, find customers and attract qualified staff. But they must contribute to the country's recovery by alleviating the pressure they exert on their suppliers and by refraining from using all means, legal or not, to reduce their social security contributions and taxation, for example with companies based in Luxembourg or Ireland, members of the European Union and yet qualified as tax havens.
If, on the other hand, the ways adopted to restore the public accounts concentrate efforts on those who do not benefit in any way from the success of large companies, the political consequences are likely to be heavy for the benefit of extremist parties whose mere arrival in power would pose serious threats precisely to our economic flagships that would have repercussions on their valuation. In this respect, the most absurd measure, which is nevertheless often mentioned, would be to freeze the pensions of executives in the private sector as well as in the administration, whose schemes are structurally in surplus and who have accumulated more than 100 billion euros in their reserves.
The summer of 2026 is therefore filled with good and bad news. To manage such a situation, we must not ignore any of them and find measures to take advantage of what is going well to correct what is going wrong.