French central bank trims growth outlook as demand softens

PARIS, Sept 15 (Reuters) - France faces sluggish growth this year as consumers rein in spending and businesses hold back investment over uncertainty about energy prices, public finances and geopolitical tensions, the central bank said on Tuesday, trimming its outlook.

The Bank of France lowered its 2026 growth forecast to 0.4% from 0.5% in June after activity in the euro zone's second-biggest economy stalled in the first half of the year.

While exports continue to benefit from resilient global trade, consumer and business caution are weighing on domestic demand as higher interest rates make financing more difficult, the central bank said in its quarterly outlook.

In preparation for its 2027 budget, the government lowered its 2026 forecast on Friday to 0.5% from 0.7%, which followed a downgrade by the national statistics office INSEE on Thursday to 0.4% from 0.7% previously.

The central bank said household purchasing power would contract this year as wages fail to keep pace with higher inflation triggered by the energy price shock, before returning to growth in 2027 and 2028.

It forecast growth to pick up to 0.9% in 2027 and 1.2% in 2028 as household purchasing power improves, energy price pressures ease and exports continue to support the economy.

The Bank of France warned that risks remained tilted to the downside with the conflict in the Middle East still the biggest source of uncertainty because of its impact on oil and gas prices. Under a more adverse scenario, growth would slow sharply and turn slightly negative in 2027.

The central bank forecast inflation would reach 2.3% this year, down from 2.5% in June, before easing in 2027 to 1.9% (1.7% in June) and further to 1.6% in 2028 (1.7% in June).

It estimated that unemployment would reach 8.4% by the end of the year and average 8.3% next year before slipping in 2028 to 8.0%.

Separately, the Bank of France said its monthly survey of 8,500 executives suggested the economy was set to grow 0.1% in the third quarter from the previous three months when growth was flat.

(Reporting by Leigh ThomasEditing by Alexandra Hudson)