Flat French growth in the second quarter puts outlook at risk

PARIS, Aug 28 (Reuters) - French growth flatlined in the second quarter, the national statistics agency said on Friday, revising down a preliminary reading and casting doubt on the outlook for the rest of the year.

Finance Minister Roland Lescure said the downgrade "is the first impact of the horrible summer that we had" during which France saw a succession of heatwaves, drought and wildfires.

The INSEE statistics agency said that it had revised growth for the three months through June from 0.2% in an initial reading to 0.0% after the euro zone's second-biggest economy contracted 0.2% in the first quarter.

It put the revision down in part to weak agriculture production, which was hit particularly hard by the summer heatwaves and drought.

OUTLOOK AT RISK

The downgrade puts the government's full-year growth forecast of 0.7% all but out of reach as the economy would need to grow 0.5% in both the third and fourth quarters to reach it, according to INSEE.

Weaker-than-expected growth in turn raises the risk that the government will not be able to cut its fiscal deficit to 5.0% of economic output as planned this year from 5.1% last year.

Lescure told an economics conference that his ministry would need to factor in a likely weak third quarter when it updated France's growth and deficit forecasts in September before presenting the 2027 budget bill in early October.

LACKLUSTRE GROWTH

INSEE said household consumption, the traditional driver of French growth, rose to +0.3% from -0.3% in the first quarter of 2026, boosted by a rise in consumption of food, energy and manufactured goods.

Exports rose sharply to +2.9% after -3.0% in the previous quarter, driven by a strong rebound in aeronautical exports, the office said. But as companies stepped up shipments, they drew down inventories, which subtracted 0.7% from second quarter growth.

Separately, INSEE said that inflation accelerated to a three-month high of 2.7% in August as energy prices rebounded, according to EU-harmonised data.

The extreme weather over the summer has complicated a growth outlook that was already clouded by a series of external shocks over the past year, including a tariff dispute with the U.S., and high energy prices due to the U.S.-Israeli war with Iran.

(Reporting by Mateusz Rabiega in Gdansk, Sudip Kar-Gupta in Brussels and Leigh Thomas in Paris; Editing by Milla Nissi-Prussak and Alison Williams)