The sharp rise in French long-term rates adds a new headwind to an already weak outlook. After climbing by around 15 basis points on Wednesday, the 10-year OAT yield rose further this morning, briefly reaching 4.70%, its highest level since 2008. This is roughly half a percentage point above its level at the start of September and reflects both the broader sell-off in eurozone bonds and a growing risk premium on France’s fiscal and political outlook.
This increase will gradually feed into the public finances, which are already in a very difficult position. As discussed in our latest article on France’s fiscal outlook, the deficit is expected to reach 5.4% of GDP in 2026, after 5.1% in 2025, and could rise to 6.5% in 2027 without corrective measures. Higher yields will not affect the entire debt stock immediately, given its relatively long average maturity, but they will steadily raise the interest bill as debt is refinanced.
The impact will not be confined to the budget. Higher borrowing costs will further constrain household housing investment and the construction sector, while making business investment less attractive. At the same time, a rising interest burden will leave the government with even less room to support activity and increase the scale of the fiscal adjustment required. Against a backdrop of low confidence, this combination is likely to reinforce households’ precautionary saving and companies’ wait-and-see behaviour.
These tighter financial and fiscal conditions will therefore make the recovery even more sluggish. We currently expect French GDP growth to average just 0.4% in 2026 before edging up to 0.9% in 2027, supported by somewhat stronger European demand and a gradual improvement in industry and investment. Even then, growth would remain constrained by weak household confidence, a softer labour market and the need for fiscal consolidation.