In 2025, the global economy proved fairly resilient to the concerns sparked by the new US customs policy. Buoyed by vigorous intra-Asian trade, world trade has defied forecasts, growing by an average of +3.6% annually, following a +3.3% increase in 2024. Despite a sluggish labour market, the US economy continued to grow (+2.1% after +2.8%), driven by massive investment in artificial intelligence and soaring valuations of companies in the sector, which have fuelled household consumption through wealth effects. In Europe, despite the headwinds caused by rising US tariffs and competition from China, economies managed, for better or worse, to kick-start a recovery in 2025. The ECB’s successive easing measures bore fruit, and investment emerged from its slumber, offsetting the negative impact of foreign trade, although significant disparities remained between the Spanish hare and the German tortoise. Inflation in the euro area eased through to February 2026, (+1.9% year on year), returning to the ECB’s target level. Overall, growth reached +0.9% in 2025 in the four major euro area economies (up from +0.7%), and the business tendency surveys conducted through to February suggest that this positive momentum continued into Q1 2026, with manufacturers reporting that their order books are filling up, particularly in the defence sector.

However, the outbreak of war in the Middle East has caused fuel prices to soar. The surge in oil prices, approaching $100 (compared with an average of $63 at end-2025), along with rising gas prices, is expected to push inflation above 3% by June in both the euro area and the United States. Although the United States is an oil-producing economy, US households are set to face a sharp decline in their purchasing power this spring, and their consumption – already hampered by a faltering labour market – is likely to weaken. For Europe, which imports massive quantities of oil and gas, a rise in supply costs of this magnitude, at the time of writing this Economic Outlook, would subtract more than 0.5 percentage points from GDP if it were to persist. Household purchasing power and corporate profit margins would be squeezed, thereby undermining the ongoing recovery. However, the impact on economic activity should not be immediate. In the very short term, robust investment and the German fiscal stimulus are expected to maintain euro area growth at +0.3% followed by +0.2% per quarter in H1 2026. However, as in the United States, European consumers are expected to start scaling back their spending from the spring onwards. Ultimately, the mid-year growth overhang in 2026 is projected to reach +1.8% in the United States and +0.8% in the euro area, but the carry-over effect in household purchasing power is likely to be significantly lower (at +0.1% and -0.1% respectively), reflecting the negative impact of soaring fuel prices.

Despite political uncertainties, the French economy is benefiting from the European recovery. Growth reached +0.9% in 2025, almost matching its 2024 level (+1.1%). Domestic demand in France is slightly weaker than in other European countries, as both enterprises and, even more so, households are more cautious than elsewhere, with the household savings ratio stabilising at over 18%. In addition, the French labour market stands out from the rest of Europe: unemployment is rising (7.9% at end-2025, up 0.6 points year on year), whilst it remains stable or is falling in other major European countries, and recruitment difficulties are less acute in France than elsewhere. As a result, wage growth is significantly weaker and, in February, inflation in France (+0.9% year on year) was around one point lower than in the rest of the euro area. Conversely, foreign trade weighs less on economic activity in France than elsewhere in Europe. The sectoral focus (aerospace, luxury goods, tourism) and the geographical orientation of French sales abroad (less focused on the United States than the sales of German and Italian exporters) are assets in the current climate, whilst the prolonged sluggishness of prices and wages in France is beginning to make French products more affordable than those of their European competitors. In addition, as elsewhere in Europe, business tendency surveys up to February indicated a degree of optimism among manufacturers, suggesting a promising Q1 2026.

However, the surge in hydrocarbon prices is expected to lead to a sharp rise in inflation in France, as elsewhere in the world, with inflation set to exceed 2% during the spring. This sharp rise is likely to stem mainly from the direct effects on petrol and heating gas prices and is not yet expected to spill over into other sectors over the forecasting period, except in the aviation sector, where kerosene accounts for a significant share of costs. In particular, by June, the resurgence of inflation is unlikely to have been factored into sectoral and enterprise-level wage negotiations, and nominal wages are likely to remain sluggish, reflecting weakened bargaining power among employees. The threshold for the automatic increase in the minimum wage should be reached in the spring, but its full effects are unlikely to be felt until H2 2026. Consequently, household purchasing power looks set to decline, and its mid-year growth overhang for 2026 should stand at -0.2%.

However, an immediate downward effect on household consumption is unlikely, as households are expected to mitigate the short-term impact of this inflationary shock on their spending by drawing on their savings. The year 2025 ended on a fairly positive note for consumption, with automobile purchases boosted by social leasing schemes and food expenditure benefiting from the end of downtrading behaviours which had weighed heavily on spending between 2022 and 2024. In early 2026, consumption is expected to slow significantly (+0.1% in Q1 after +0.4%), mainly due to the mild winter, which reduced heating needs. In Q2, the recovery looks set to be modest (+0.2%), as households begin to curb their discretionary spending in response to rising inflation, particularly on accommodation and food services and transport. Ultimately, the mid-year growth overhang of consumption for 2026 is expected to reach +0.6%, after +0.4% for 2025 as a whole.

On the corporate side, investment came to a standstill at the end of 2025 (-0.1%) following four quarters of recovery. Initial data suggests that this sluggishness should persist into early 2026, notably due to limited renewals of corporate vehicle fleets, but investment is expected to bounce back in the spring (+0.3%). Overall, the mid-year growth overhang of investment for 2026 should stand at +0.8%, following +0.2% for 2025 as a whole. The impact of rising energy costs on corporate profit margins should scarcely be felt until mid-2026, as enterprises are expected to benefit from improved productivity and declining real wages.

Public final demand has accounted for around half of French growth over the past three years, but this support is set to weaken slightly between now and mid-2026. On the one hand, the Initial Finance Law, passed in February 2026 following two months of operating under a provisional budget regime (“services votés”), implies tighter budgetary control over operating expenditure; on the other hand, local public investment is expected to contract, as is customary in municipal election years.

Foreign trade is likely to be the main driver of French growth. In business tendency surveys, manufacturers claim to be optimistic about foreign demand and their export order books are relatively well filled. Following a record-breaking end to 2025 in terms of aircraft deliveries, exports are expected to dip temporarily at the start of 2026, but should regain momentum in the spring, as the annual targets of the major manufacturers in the sector are set significantly higher. Overall, the mid-year growth overhang of exports for 2026 is expected to reach +1.9%.

All in all, although weakened, French growth should remain resilient in H1 2026, with a quarterly increase of +0.2% and a mid-year growth overhang of +0.9% – already matching the figure for 2025 as a whole. The drivers of economic activity should change to a limited extent, with somewhat stronger private demand, slightly lower public demand and clear external support. However, this nascent recovery is expected to be overshadowed by a sudden deterioration in the terms of trade, driven by higher energy prices.

The labour market, for its part, is unlikely to benefit from this modest upturn. In the business tendency surveys, even before the outbreak of war in the Middle East, the pessimism of enterprises concerning recruitment contrasted sharply with their relative optimism about orders. After already losing 60,000 private-sector salaried jobs in 2025, the French economy is set to shed a further 22,000 by June. The creation of micro-enterprises should continue to drive growth in self-employment (+36,000 in six months), but these jobs generate significantly less income for households. Ultimately, total employment is likely to grow only slightly by the middle of the year, which would be insufficient to absorb the substantial increase in the labour force, driven by the ramping up of the pension reform (its suspension having no effect before the end of 2026). The unemployment rate is expected to rise further to 8.1% in the spring.

The main uncertainty in the forecast scenario concerns the duration and intensity of the conflict between the United States and Israel on the one hand and Iran on the other. This Economic Outlook assumes that oil prices will remain around $100 until June: if the conflict were to end quickly, excess supply would once again dominate the market and prices would plummet, reigniting the European recovery. Conversely, an escalation of the conflict – particularly involving the destruction of production capacity in the Gulf states – could drive hydrocarbon prices even higher, further eroding household purchasing power. Beyond oil, a prolonged conflict in the Middle East could cause more significant disruptions to world trade and trigger supply shortages. The speed at which private agents adapt their behaviour will also be crucial. This Economic Outlook anticipates a moderate short-term pass-through for France, since the current shock – confined to hydrocarbon prices – does not, at this stage, fully resemble that of 2022. However, the previous inflationary wave showed that, on the corporate side, manufacturers and retailers could pass on rising input costs to consumer prices very quickly, and, on the household side, that households could quickly scale back their spending.