French economy unexpectedly stalls in 1st quarter amid Mideast uncertainty

France's economy unexpectedly failed to grow in the first quarter of 2026, as weak domestic demand and a sharp fall in exports underscored the impact of the Iran war on economic activity.

Gross domestic product (GDP) was unchanged from the final quarter of 2025, after expanding 0.2% in the previous period, France's national statistics agency Insee said Thursday.

The reading missed market expectations for 0.2% quarterly growth.

The data showed consumer spending declined 0.1% in the January-March period, while household investment fell 0.7%. Business investment also dropped 0.2%, after stagnating at the end of 2025.

Net trade subtracted 0.7 percentage points from GDP, driven by a 3.8% fall in exports. Inventory building helped offset the decline, adding 0.8 percentage points to growth.

The figures cover only the first month of the Iran war, suggesting the full impact of higher energy costs and weaker confidence may be reflected more clearly in later data.

Separate figures showed consumer spending rose 0.7% in March, partially recovering from a 1.4% decline in February, though the rebound was slightly below expectations.

The slowdown comes as European economies face renewed inflationary pressure from surging energy prices, with the European Central Bank expected to keep interest rates unchanged at 2% later Thursday.

France and Italy have already lowered their growth forecasts, while Germany has cut its 2026 projection to 0.5%.

The French government has warned that the Iran war could cost public finances as much as €6 billion ($7 billion) this year, though officials said the impact would be offset through a freeze on spending.