French economic growth seen at 0.7% in 2026 as oil shock hits consumers, says INSEE

PARIS, June 17 (Reuters) - France's economy is set for modest growth in 2026 as an oil price spike squeezes consumers, only partially offset by a rebound in industrial output, the national statistics agency INSEE said on Wednesday.

The euro zone's second-biggest economy is on course to grow 0.7% this year after posting 0.9% last year, INSEE forecast in its latest outlook, estimating the oil price shock caused by the Iran war would amount to a 0.2 to 0.3 percentage point drag on growth.

As companies pass on higher costs, households will bear the brunt of the energy shock through a weak labour market limiting their ability to secure higher wages, INSEE said.

While consumers rein in spending and dip into savings, French industrial companies are faring better, with chemicals producers and refiners winning market share from Middle East competitors hit by disruption to Gulf trade.

Economic growth will be supported by strong shipbuilding and aerospace sectors, with full civilian and military order books and shipments expected to rise 10% this year, boosting exports, INSEE said.

On a quarterly basis, growth is expected to pick up to 0.3% in the second quarter, revised up from 0.2% previously, after a 0.1% contraction at the start of the year as exports rebound.

Growth is then seen slowing to 0.1% in both the third and fourth quarters, INSEE said.

EU-harmonised inflation is forecast to accelerate from 2.4% in June to 3.0% by December as higher oil prices gradually feed through to broader costs, it said.    

(Reporting by Leigh ThomasEditing by Gareth Jones)