France’s Social Demands Run Up Against Tightening Fiscal Constraints

Thursday’s nationwide mobilisation over wages and purchasing power will add pressure on a French government already struggling with weak growth, a fragile labour market and an increasingly unmanageable budget. Its options for responding to social discontent are narrowing as higher borrowing costs further weaken the outlook for public debt.

Student-led protests have grown into a broader social movement, putting more pressure on the French government.

Pressure mounts for action on purchasing power

What began as a student-led protest has grown into a broader social movement, adding to the government’s challenges as it struggles to get its 2027 budget through parliament.

The mobilisation continued during the school holidays, with between 320,000 and 500,000 people taking to the streets last Saturday, fewer than in previous weeks but hardly the pause the government had hoped for. The next test will come on Thursday, 5 November, when all the main trade unions will mobilise over wages and purchasing power, with students and public sector workers expected to join the protests.

Under pressure, the government is considering raising the minimum wage by more than the automatic increase of around 1% due in January, possibly adding another 0.5 to 0.6 percentage points. This would be the first discretionary increase since 2012. But employers are strongly opposed, as they are already facing higher labour costs through planned cuts to social contribution exemptions. A further rise in the minimum wage could therefore encourage companies to limit recruitment or reduce their workforce, at a time when the labour market is already fragile.

Private sector employment has declined for seven consecutive quarters in annual terms and now stands 0.3% lower than a year ago, representing a loss of almost 70,000 jobs. A discretionary increase in the minimum wage would also have implications for the public sector. It could raise the pay of around 15% of public sector employees, adding further pressure on the public finances.

Part of the additional wage cost could also be passed on to consumers, adding to inflationary pressures. Higher energy prices have already pushed headline inflation from 3.1% in September to an estimated 3.4% in October, while harmonised inflation reached 3.8%.

Budget talks are producing a larger deficit, not a solution

These pressures are making an already difficult budget equation even harder to solve. After 10 full days of debate and more than 2,300 amendments examined, France’s 2027 budget discussions appear to be going nowhere, except towards a larger deficit than the government intended. While the government aims to reduce the deficit to 5% of GDP in 2027, after an expected 5.4% in 2026, the measures approved so far have pushed it substantially further off course. According to the Finance Ministry, the amendments adopted during the first reading have already worsened the projected deficit by €23.9bn (total deficit in 2026 will be around €165bn).

The vote on the revenue part has been postponed again, as MPs continue to adopt measures pointing in all directions. Yet the exercise increasingly makes little sense: the fragmented National Assembly is unlikely to approve the budget, leaving the government with two possible escape routes. It could use Article 49.3 to pass the bill without a vote, but would first need to negotiate with parts of the opposition to ensure that a subsequent no-confidence motion fails. For now, there are few signs of such talks. If the motion passed, the government would fall and the budget would be rejected. Alternatively, once the constitutional 70-day deadline expires on 18 December, the government could implement its original budget by ordinance. A two-stage solution, with the ordinance followed by a corrective bill, is reportedly gaining support among MPs, including some Socialists. The corrective bill could accommodate selected social promises.

Weak growth makes the fiscal targets unrealistic

The problem is that the government’s initial budget will no longer be sufficient to bring the deficit down to 5% of GDP. It was based on GDP growth of 1% in 2027, an assumption that now looks clearly too optimistic. The French economy contracted by 0.1% in the third quarter, after stagnating in the second and shrinking by 0.2% in the first, leaving GDP marginally lower than a year earlier and France hovering close to recession.

The details of the third-quarter figure were also weak: investment fell by 0.6% and net trade subtracted 0.6 percentage points from growth as exports dropped sharply, while inventories provided a temporary offset. The only real positive surprise came from household consumption, which rose by 0.4%. But there is little reason to expect this momentum to last. Consumer confidence fell by five points to 80 in October, its lowest level since June 2013 and well below its long-term average of 100. Households’ assessment of whether this is a good time to make major purchases dropped sharply, while fears of unemployment increased. Most strikingly, their assessment of living standards fell to its lowest level since the survey began in October 1972. This points to much weaker consumption in the coming months.

The outlook for investment is equally weak. Financing conditions are deteriorating particularly sharply in France: according to the latest ECB Bank Lending Survey, a net 27% of French banks tightened credit standards for businesses in the third quarter, compared with around 8% in Germany, no tightening in Spain and an easing in Italy. Together with weak demand, higher interest rates and uncertainty over taxes and public spending, this is likely to encourage companies and households to postpone projects.

Combined with political uncertainty and social tensions, growth is likely to be very weak in the fourth quarter as well. All in all, we now expect GDP growth of just 0.3% this year and 0.5% in 2027, with risks still tilted to the downside. Under these assumptions, implementing the budget unchanged would leave the deficit at around 5.5% of GDP. Reaching the government’s 5% target would require roughly €12bn in additional savings, on top of the €43bn effort already included in the budget, which looks highly unlikely in the current political environment. And that is before including the almost €500mn cost of the measures promised to high-school and university students.

Debt is unlikely to stabilise anytime soon

All this leaves France’s debt dynamics looking increasingly uncomfortable. The government had expected public debt to reach 121.7% of GDP in 2027, already a level at which a 5% deficit would be insufficient to stabilise the debt ratio. With growth now likely to be weaker and the deficit higher than assumed in the budget, debt will probably rise even further, and there is little prospect of stabilisation anytime soon.

The sharp rise in borrowing costs only makes the arithmetic worse. The French 10-year yield is currently around 4.9%, more than 155bp above its German equivalent, compared with a spread of around 70bp at the end of 2025. Admittedly, the increase in market yields feeds only gradually into the effective cost of the debt as existing bonds mature: the implicit interest rate on French public debt is still around 2.2% in 2026. But this also means that a substantial part of the rise in interest costs has yet to come through. Fitch estimates that France would need to reduce its primary deficit from around 2.9% of GDP this year to just 0.4% to stabilise the debt ratio. The adjustment required would become considerably larger if the effective interest rate on the debt gradually converged towards current market yields.

And the 2027 presidential election is unlikely to provide an easy reset. A new president could again find her or himself without a parliamentary majority, making the large and sustained fiscal adjustment required increasingly difficult to deliver. These concerns prompted Fitch to take the unusual step on 30 October of bringing forward its assessment and revising the outlook on France’s A+ rating from stable to negative, only a week after Moody’s unexpectedly kept its Aa3 rating unchanged, albeit with a negative outlook. Fitch explicitly pointed to weaker growth, higher borrowing costs and a wider deficit, together with political fragmentation and social tensions that make sustained fiscal consolidation harder to achieve. It expects French public debt to reach around 128% of GDP by 2030, considerably above the roughly 123% projected by the IMF.

All in all, tomorrow’s demonstrations will once again underline the population’s frustration over purchasing power. But without stronger economic growth to lift household incomes while simultaneously easing the pressure on the public finances, the government has very limited room to offer measures large enough to make a meaningful difference without making an already worrying fiscal trajectory even worse.