{"id":71027,"date":"2026-08-28T03:08:10","date_gmt":"2026-08-28T07:08:10","guid":{"rendered":"https:\/\/www2.stockmarketwatch.com\/stock-market-news\/french-economy-stalls-in-q2-as-inflation-re-accelerates-and-payrolls-shrink\/71027\/"},"modified":"2026-08-28T03:08:10","modified_gmt":"2026-08-28T07:08:10","slug":"french-economy-stalls-in-q2-as-inflation-re-accelerates-and-payrolls-shrink","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/stock-market-news\/french-economy-stalls-in-q2-as-inflation-re-accelerates-and-payrolls-shrink\/71027\/","title":{"rendered":"French Economy Stalls in Q2 as Inflation Re-Accelerates and Payrolls Shrink"},"content":{"rendered":"<h2>Key Takeaways<\/h2>\n<ul>\n<li><strong>France&#39;s Q2 GDP growth was revised down to 0.0%<\/strong>, missing the estimated <strong>0.2%<\/strong> expansion as the eurozone&#39;s second-largest economy stagnated.<\/li>\n<li><strong>Inflation accelerated in August<\/strong>, with the EU-harmonized CPI rising to <strong>2.7% Y\/Y<\/strong>, exceeding analyst expectations of <strong>2.6%<\/strong>.<\/li>\n<li><strong>Total payrolls contracted by 0.1%<\/strong> in the second quarter, marking a downturn from the flat growth seen in the previous period.<\/li>\n<li><strong>Consumer spending provided a rare bright spot<\/strong>, jumping <strong>0.5% M\/M<\/strong> in July, significantly outperforming the flat (<strong>0.0%<\/strong>) growth forecasted by economists.<\/li>\n<li><strong>Morgan Stanley issued major sector rating changes<\/strong> for European equities, downgrading Telecoms and Paper &amp; Packaging while upgrading Chemicals.<\/li>\n<\/ul>\n<p>The French economy faced a challenging second quarter as official data revealed a complete stall in growth. <strong>Final GDP figures for Q2 came in at 0.0% on a quarterly basis<\/strong>, a downward revision from the previous <strong>0.2%<\/strong> growth rate. On a year-over-year basis, the economy expanded by just <strong>0.5%<\/strong>, falling short of the <strong>0.7%<\/strong> estimate.<\/p>\n<p>The labor market also showed signs of cooling, with <strong>total payrolls dropping 0.1%<\/strong> in Q2. This decline was led by the private sector, where payroll growth remained stagnant at <strong>-0.1%<\/strong>, matching the previous quarter&#39;s contraction. These figures suggest that the high-interest-rate environment is beginning to weigh more heavily on corporate hiring and retention.<\/p>\n<p>Inflationary pressures unexpectedly picked up in August, complicating the European Central Bank&#39;s path forward. The <strong>EU-harmonized Consumer Price Index (CPI) rose to 2.7% Y\/Y<\/strong>, up from <strong>2.4%<\/strong> in July. On a monthly basis, prices climbed <strong>0.8%<\/strong>, driven largely by seasonal shifts and energy costs, surpassing the <strong>0.7%<\/strong> consensus estimate.<\/p>\n<p>Despite the broader stagnation, French households showed surprising resilience in mid-summer. <strong>Consumer spending in July rose by 0.5% M\/M<\/strong>, beating the <strong>0.0%<\/strong> expectation. This follows a revised <strong>0.6%<\/strong> increase in June, suggesting that internal demand remains a critical pillar of support for the economy even as industrial and employment metrics soften.<\/p>\n<p>In the equity markets, <strong>Morgan Stanley (<a href=\"\/stock\/MS\">MS<\/a>)<\/strong> shook up sector allocations for European investors. The bank downgraded the <strong>European Telecoms sector<\/strong> to <strong>Equal Weight<\/strong> from Overweight and lowered the <strong>Paper and Packaging sector<\/strong> to <strong>Underweight<\/strong>. Conversely, analysts upgraded the <strong>European Chemicals sector<\/strong> to <strong>Equal Weight<\/strong>, citing a shift in valuation and cyclical recovery potential.<\/p>\n<p>Geopolitical tensions also remain in focus as <strong>Iran\u2019s Foreign Minister<\/strong> signaled that a return to diplomacy with the U.S. is contingent on mutual respect and the recognition of Iran&#39;s rights. The minister emphasized that <em>&quot;pressure doesn&#39;t work,&quot;<\/em> suggesting that any easing of energy-related sanctions\u2014which could impact global inflation\u2014remains a distant prospect.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Key Takeaways France&#39;s Q2 GDP growth was revised down to 0.0%, missing the estimated 0.2% expansion as the eurozone&#39;s second-largest 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