France is facing a 25 percent increase in the cost of servicing its national debt this year, rising to an estimated €65 billion, amid geopolitical tensions and volatility in global bond markets. Finance Minister Roland Lescure highlighted the growing financial burden during a press conference, noting that current debt interest payments now exceed government spending on education and national defense.

The government has lowered its 2026 gross domestic product (GDP) growth forecast from an earlier projection of 1 percent to 0.5 percent. Lescure attributed the revised outlook to several factors, including higher energy prices linked to the ongoing conflict involving Iran, reduced agricultural output caused by this summer’s drought, and persistent political uncertainty driven by parliamentary deadlock ahead of the presidential election scheduled for April 2027.

The French finance minister also indicated expectations for an economic rebound to 1 percent growth next year, contingent on increased shipping traffic through the Strait of Hormuz. This follows reports that Gulf Cooperation Council ministers are set to meet with Iranian officials in efforts to negotiate temporary access to the strategic waterway, a critical passage for global energy supply chains.

Due to the downward revision in growth, the government acknowledged it would be unable to achieve its target of reducing the budget deficit to approximately 5 percent of GDP in 2026, though no new deficit estimate was provided. Inflation is anticipated to reach around 2.1 percent this year, according to Lescure.

These developments come in the wake of the European Central Bank’s recent decision to raise interest rates across the 21-country Eurozone by 25 basis points to 2.5 percent, aiming to curb inflation. While France has experienced relatively lower inflation compared to other Eurozone members, economic expansion has lagged; the country’s economy was flat in the second quarter, in contrast with the broader Eurozone’s 0.6 percent growth.

Adding to economic concerns, French unemployment rose to 8.3 percent in the second quarter, its highest level since late 2020 during the COVID-19 pandemic period.

Investor apprehension about France’s fiscal outlook has grown, with demand for higher yields on French 10-year government bonds increasing. The bond yield climbed to as high as 4.45 percent recently—up from 3.22 percent in February and marking the highest level since 2008. France’s gross government debt stood at €3.5 trillion by the end of the first quarter, representing 117.6 percent of GDP, significantly above the Eurozone average of 88.9 percent.

The spread between French and German 10-year bond yields—a key indicator of investor risk sentiment—has widened to over 0.9 percentage points, its broadest gap since the 2012 Eurozone financial crisis and now exceeding spreads observed in Italy and Greece.

Kevin Thozet, an investment committee member at French asset manager Carmignac, described France as the most exposed within the Eurozone to factors driving bond yields upward. Meanwhile, Emmanuel Moulin, head of the Bank of France, characterized the current situation as "worrying and unsatisfactory," while not deeming it dangerous. He emphasized the urgency of addressing issues related to public finances and the budget deficit.

Finance Minister Lescure concluded with a call for parliamentary responsibility in upcoming budget discussions, stressing the need for collective efforts that safeguard France’s economic growth potential amid these fiscal challenges.