A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.An International Monetary Fund (IMF) mission, led by Manuela Goretti and comprising Clara Arroyo, Florian Misch, Rasmane Ouedraogo, Danila Smirnov, and Maryam Vaziri, conducted discussions during May 11-21 for the 2026 Article IV Consultation with France. At the end of the visit, the mission issued the following statement:
The French economy continued to expand at a moderate pace in 2025, despite domestic and external shocks, but new headwinds from the war in the Middle East are starting to weigh on activity. The authorities’ response to the energy shock has so far been appropriate and should remain limited, temporary, and targeted towards the most vulnerable, while preserving market incentives and containing fiscal costs. High public debt and rising spending pressures underscore the need to advance the consolidation effort, in line with the Medium Term Fiscal Structural Plan and EU rules, building on the 2025 fiscal overperformance. The upcoming electoral cycle provides an opportunity for France to articulate a credible, well‑defined multi‑year strategy to support fiscal consolidation and unlock growth potential. Fiscal policy should be anchored by a high-quality medium‑term package of measures to reprioritize spending, improve efficiency, strengthen public finances, and support debt sustainability, while preserving space for priority spending needs for defense, population aging, and the digital and green transitions If well targeted, carefully sequenced, and complemented by structural reforms, these rationalization efforts would preserve equity, protect the most vulnerable, and support medium-term growth. Macro‑structural policies should focus on easing regulatory bottlenecks, mobilizing private savings toward productive investment, and strengthening labor supply amid demographic pressures and ongoing transitions. Financial sector policies should continue to safeguard stability, address emerging non‑bank risks, and support the efficient transmission of reforms. Together, a coherent policy package, combined with deeper EU single market integration, would bolster confidence and support durable, inclusive growth.
Economic Outlook
Growth prospects remain subject to elevated external and domestic uncertainty. Real GDP growth is projected to remain modest in 2026, slowing to 0.7 percent from 0.9 percent in 2025, as spillovers from the war in the Middle East raise inflation and dampen domestic demand. Business investment and household consumption are set to moderate in response to the shock, amid a persistent wait-and-see attitude ahead of the 2027 elections. Under the baseline, growth is projected to recover gradually from late 2026 as external conditions stabilize and to firm further in the second half of 2027 as domestic uncertainty recedes following the elections.
In the near-term, the risks to the outlook remain tilted to the downside. Despite France’s diversified economy and relatively low dependence on energy imports, rising geopolitical tensions, including a prolonged war in the Middle East, could disrupt trade, notably energy supplies, further raising inflation and negatively affecting growth. A potential disorderly AI market correction could further impact financial flows, dampening sentiment. Domestically, heightened political uncertainty ahead of next year’s presidential elections could further delay planned fiscal consolidation and structural reforms. Weaker private demand and mounting fiscal risks may revive market pressures, worsening debt dynamics. On the upside, easing geoeconomic tensions and renewed political consensus around ambitious structural reforms could boost confidence, investment, exports, and overall growth.
Fiscal Policy: Shaping a Medium-Term Strategy to Address New Spending Priorities and Advance Consolidation
Despite recent progress, fiscal consolidation remains slower than planned and still subject to significant implementation risks. The fiscal deficit declined to 5.1 percent of GDP in 2025, below the initial target, reflecting proactive spending management. The 2026 budget remains compliant with EU rules but falls short of initial plans, as additional reforms could not be adopted for lack of sufficient political support. While the authorities remain committed to bringing the fiscal deficit below 3 percent of GDP by 2029, absent further measures, the current pace of adjustment would be insufficient to meet the Medium-Term Fiscal Structural Plan (MTFSP)’s objectives. Under staff’s baseline scenario, the consolidation effort during 2027-29 is projected to only meet minimum EU requirements and, similar to recent budgets, rely on a relatively less efficient mix of ad-hoc revenue measures and spending cuts than in the initial plans. Fiscal adjustment at that pace would remain insufficient for France to exit the Excessive Deficit Procedure (EDP) by 2029 as targeted, keep debt elevated, and necessitate larger adjustments later. The risk of adverse macro-fiscal feedback loops would increase. The baseline is also subject to significant implementation risks, reflecting reliance on yet-to-be-legislated fiscal measures and uncertainty around macroeconomic assumptions.
Elevated global uncertainty underscores the importance of robust contingency planning. The authorities’ response to the Middle East energy shock has so far been appropriately limited, temporary, and targeted towards the most vulnerable, while containing fiscal costs. Sustained fiscal consolidation efforts remain essential, as insufficient adjustment risks placing public debt on an unsustainable trajectory and amplifying macro-financial vulnerabilities. In this context, the €6 billion savings in budget allocations to offset the estimated fiscal impact of the energy shock is a welcome step, and the authorities have reiterated their commitment to adopt additional measures as warranted. Should downside risks materialize, any further measures should continue to target the most vulnerable groups, while preserving market incentives, ensuring adequate pricing of externalities, and safeguarding fiscal sustainability. Strengthened EU-level coordination in the response to the crisis would further enhance policy effectiveness, reduce financing costs, and reinforce collective resilience.
An updated and clearly specified multi-annual strategy, anchored in high-quality fiscal measures and structural reforms, is essential to support growth and set debt firmly on a downward path. To meet the MTFSP commitment of bringing the fiscal deficit below 3 percent of GDP by 2029 and markedly reduce medium-term debt sustainability risks, staff recommends a frontloaded structural fiscal effort of about 0.8 percent of GDP per year over 2027-2029, which could be gradually eased thereafter, especially if supported by growth-enhancing domestic and EU-level structural reforms. The next administration should adopt a new Multi-Year Programming Law to underpin the EU MTFSP objectives, providing a stronger anchor for medium-term consolidation and enhancing predictability. While delivering on the MTFSP ambition and advancing the structural reform agenda will require resolute policy action and entail difficult trade-offs to ensure fairness and social cohesion, it will also set debt firmly on a downward path, safeguarding growth and strengthening the resilience of the economy to shocks.
Well-targeted revenue measures can aid consolidation but will not be sufficient to meet France’s sizable adjustment needs, given the already high tax burden. France’s revenue-to-GDP ratio—among the highest in the euro area—significantly constrains the scope for further revenue-based adjustment. While consolidation efforts in 2025–26 relied largely on temporary revenue measures, notably higher corporate taxation, the scale of the required medium-term adjustment makes further reliance on tax increases neither feasible nor desirable, given the risks to business confidence, competitiveness, and growth. Any additional revenue measures should prioritize reducing tax loopholes, eliminating inefficient tax expenditures, and addressing distortions in the taxation of capital income, while strengthening compliance and fairness.
Reprioritizing France’s large spending envelope is essential to create room for emerging priorities, while advancing fiscal consolidation. Public spending reached 57.5 percent of GDP in 2025, the highest in the euro area, largely reflecting elevated current spending, notwithstanding important savings from past spending reviews. At the same time, aging, defense, digital investment, and green transition will add further pressure on public finances. In this context, the fiscal consolidation strategy should aim at rationalizing inefficient spending and reallocating current and social spending towards priority areas, supported by ambitious structural reforms and ongoing spending reviews, including by:
These rationalization efforts should be well targeted and carefully sequenced to preserve equity, protect the most vulnerable and support medium-term growth. Given the structure of the administrative system, effective implementation will require action across all government levels (central, social security and local), alongside efforts to enhance investment efficiency, and reduce overlaps in government spending.
Macrostructural Policies: Turning Structural Transitions into Engines of Innovation and Growth
France’s economic resilience and medium-term growth performance hinge on its ability to leverage ongoing structural transitions through ambitious reforms. In an environment of modest potential growth, elevated uncertainty, and high public debt, growth‑enhancing structural reforms are essential to lift potential output, redirect abundant household savings towards productive investment, and support fiscal consolidation. Deeper integration within the European Single Market can amplify the impact of domestic reforms by allowing firms to scale up while strengthening competition and expanding financing opportunities. As reform benefits accrue gradually, predictability and timely implementation are critical to strengthen domestic demand by ensuring a steady increase in household incomes and investment incentives.
Reducing regulatory barriers, accelerating AI adoption, and advancing the green transition will support productivity and resilience. Despite progress, administrative barriers remain high in parts of the French economy, weighing on entrepreneurship and competition. The Simplification Bill and the decree to accelerate project approval processes in strategic sectors are welcome steps and should be complemented by further measures to reduce red tape and ease entry restrictions in selected services and regulated professions. France’s AI strategy has strengthened R&D capacity, but sustained efforts to foster firm-level adoption will be critical to unlocking productivity gains. At the same time, implementation of France’s climate and energy strategy will bolster economic resilience by reducing reliance on fossil fuels while supporting broader technological transformation. Accelerating grid investment and deepening integration of the European electricity single market would further enhance resilience and help manage supply–demand pressures, including during shocks.
Mobilizing private financing, particularly venture capital (VC), is essential to foster entrepreneurship, spur innovation, and scale up high-growth firms. While France benefits from a growing innovation ecosystem, scaling startups into technology leaders requires access to deeper VC pools. Well-designed and targeted public instruments that address major market failures can effectively support innovation and the green transition while preserving private investment incentives and ensuring efficient use of public resources. Given high household savings, enhancing financial literacy, simplifying regulation, and better aligning tax incentives could channel more savings toward productive investment, including under the new Finance Europe label, and raise long-term returns. Complementary EU-level initiatives—notably advancing the Savings and Investments Union and deepening the single market—could further improve financing conditions and support scale.
A coherent mix of labor market incentives, targeted family policies, and skills development is essential to fully leverage France’s labor force. With France’s faster-than-expected drop in fertility and aging population, boosting labor supply requires fostering longer, less fragmented careers, higher female participation, and better integration of migrants. There is scope to accelerate and better align education and training initiatives with fast-evolving digital skill requirements for both AI development and adoption. Further progress would come from facilitating intra‑EU labor mobility, including through improved recognition of professional qualifications.
Adapting to a Complex Financial Landscape
The banking sector remains resilient, supported by stronger income performance, solid buffers, and low credit risk. Capital adequacy ratios remain in line with the EU average, and liquidity indicators remain robust, all exceeding required minimums. Proactive provisioning and high non-performing loan (NPL) coverage ratios continue to mitigate credit risk. While direct sovereign exposures are limited, government borrowing conditions still affect banks indirectly through funding costs and financial market conditions. Borrower-based measures continue to promote prudent lending practices and curb riskier borrowing by households. Risks from high non-financial corporate debt warrant continued monitoring but remain manageable. Corporate bankruptcies have continued to edge up after rising sharply in the post-pandemic period as crisis-support measures expired. However, they account for a small share of banks’ credit portfolio, and NPL ratios remain broadly stable.
Overall, financial stability risks remain contained, supported by proactive supervisory efforts to strengthen the policy toolkit in an increasingly complex landscape. The 2025 EBA stress test confirmed the resilience of the banking sector under severe geopolitical and recessionary stress test scenarios, with all major banks continuing to meet their regulatory capital requirements, consistent with the findings of the 2025 Financial Sector Assessment Program (FSAP) stress tests. The countercyclical capital buffer, currently at 1 percent, provides an important additional safeguard, and clear communication on its releasability remains important. In this context, the recently concluded High Council of Financial Stability (HCSF) review of the macroprudential strategy, which confirmed the appropriateness of the existing framework while expanding its risk coverage and strengthening communication, is welcome. Looking ahead, the authorities should continue to ensure that HCSF enjoys the operational independence needed to focus on financial stability issues and has sufficient and adequate legal powers to respond in a flexible, timely, and proportionate way to new risks that may arise. The authorities should also continue to proactively strengthen preparedness against cyber risks, amid rising AI-related threats.
Non-bank financial institution (NBFI) vulnerabilities remain contained but warrant continued scrutiny amid increasingly complex interlinkages. France’s vulnerabilities to overvaluation risks, including from a sharp AI market correction, are mitigated by its relatively limited NBFI footprint and related exposures. However, while corporate financing through NBFIs remains small in percent of total assets, interconnectedness between banks and NBFIs is increasing, including through bank‑funded leverage in private credit vehicles. In this context, the ongoing system-wide stress test–the first of its kind in the EU–should deepen supervisors’ understanding of risks related to investment funds and broader financial sector interlinkages, while providing an EU-level blueprint for common metrics--—and underlying inter-agency data sharing needs at the national and EU level—and future system-wide stress testing.
The mission thanks the authorities and our other interlocutors in France for the productive collaboration and constructive policy dialogue.
