France’s escalating unrest is intensifying investor concerns over public finances and economic growth, as the government faces mounting pressure to deliver budget savings amid political divisions and further planned demonstrations. The yield on 10-year French government bonds reached its highest level since 2002 earlier this week, while investors assess the potential economic costs of prolonged disruption.
Moody’s on Friday maintained France’s Aa3 sovereign credit rating, which it classifies as “high grade”, but kept its outlook negative. The ratings agency warned that political fragmentation could continue to impair the functioning of the country’s legislative institutions, increasing the risks surrounding its fiscal position.
“The negative outlook reflects the increased risk that the fragmentation of France’s political landscape will continue to impair the functioning of the country’s legislative institutions,” Moody’s said. It added that the outlook could return to stable if France’s institutions succeeded in narrowing the budget deficit.
The government aims to reduce the deficit to 5% of gross domestic product in 2027, from a projected 5.4% in 2026. The National Assembly is scheduled to resume debate on budgetary tax measures intended to generate savings on 27 October, but opposition lawmakers are resisting the proposals.
Alain Durré, head of EMEA economic research at Natixis CIB, said the government was determined to prevent borrowing costs from rising sharply. It could seek to meet its fiscal targets by invoking Article 49.3, which allows legislation to pass without a final parliamentary vote unless lawmakers approve a no-confidence motion, or by using executive ordinances.
Such measures could help restore investor confidence, Durré said. He added that recent pressure on French sovereign debt had been driven primarily by tactical portfolio reallocations, while traditional long-term investors remained on the sidelines.
The yield on benchmark 10-year French government bonds, known as OATs, rose 11 basis points on Thursday. The spread between French and German 10-year government bond yields also widened to its highest level since November 2011.
Charlotte de Montpellier, senior economist for France and Switzerland at ING, said the unrest had added uncertainty to existing budgetary and political concerns, reinforcing perceptions that future governments would struggle to deliver the reforms and savings required.
“It remains unclear whether the 2027 budget will clear parliament,” said Matthew Ryan, head of market strategy at Ebury. Even if it passed, he said, concessions to both the left and right could leave the deficit insufficiently addressed.
Further demonstrations are planned for 24 October, followed by a union-backed national day of strikes and protests on 5 November. Anti-establishment Yellow Vest protesters are among those calling for additional rallies.
De Montpellier had forecast French economic growth of just 0.3% in 2026 and 0.6% in 2027. She warned that continued unrest, deteriorating confidence or heightened market tensions could weaken growth further. Previous episodes of disruption provide an indication of the potential economic costs: the Yellow Vest movement may have reduced fourth-quarter GDP growth in 2018 by 0.1 percentage point, while industrial action during the 2023 pension protests reduced first-quarter growth by about the same amount, according to estimates cited from France’s statistical agency INSEE and the Banque de France.
ING identified retail, hospitality and tourism, and transport and logistics as the sectors most directly exposed. Shops could face closures and lost sales, while hotels, restaurants and travel services risk losing business that customers are less likely to reschedule.
France’s CAC 40 stock index fell 4.5% over the past month. Carrefour shares plunged more than 14% on Wednesday after the supermarket group cut its profit outlook and reduced investment, citing the unrest and rising energy costs as pressures on consumer sentiment. Chief executive Alexandre Bompard described the situation as “unprecedented”.
ING said more than 2,000 businesses had been directly affected by Tuesday, citing estimates from France’s network of chambers of commerce.
