Protests in France are prompting investors to reassess the government’s ability to reduce the deficit and the potential damage to economic activity. The 10-year French government bond yield reached its highest level since 2002 this week, while the spread over German 10-year debt widened to its largest since November 2011. With more demonstrations and strikes approaching, markets are watching whether the budget can pass, how prolonged unrest could affect growth and which businesses are most exposed.
Moody’s affirmed France’s Aa3 rating on Friday, keeping it in the high-grade category while maintaining a negative outlook. The agency said the country’s fragmented political landscape could continue to weaken the functioning of its legislature. The outlook could return to stable if institutions help put the budget deficit on a narrowing path.
Budget votes test the deficit-reduction plan
The government aims to reduce the budget deficit from an estimated 5.4% of GDP in 2026 to 5% in 2027. The National Assembly is expected to resume debate on budget tax measures on October 27. The proposals are intended to deliver savings, but opposition lawmakers are resisting the plan.
Alain Durré, head of EMEA economic research at Natixis CIB, said the government wants to avoid a sharp rise in borrowing costs. To advance its fiscal targets, it could invoke Article 49.3 of the Constitution to pass legislation without a final National Assembly vote, unless lawmakers subsequently pass a no-confidence motion. It could also use executive orders.
Such steps could ease market concerns and help restore investor confidence, Durré said. Recent pressure on French sovereign bonds has mainly reflected tactical portfolio adjustments, he added, while traditional buy-and-hold investors remain on the sidelines.
The yield on France’s benchmark 10-year OAT rose 11 basis points on Thursday, reaching its highest level since 2002. The spread between French and German 10-year bonds also widened to its largest since November 2011, reflecting a renewed reassessment of France’s fiscal and political risks.
Charlotte de Montpellier, senior economist for France and Switzerland at ING, said the unrest adds uncertainty to an already strained budget and political situation. It also reinforces market concerns that a future government may struggle to deliver reforms and savings. Matthew Ryan, head of market strategy at Ebury, said it remains unclear whether the 2027 budget will pass parliament. Even if it does, substantial concessions to secure support from both the left and right could leave the deficit problem unresolved.
Duration of protests is key to growth outlook
A new round of demonstrations is planned for October 24, followed by a nationwide strike and protests backed by unions on November 5. Activists from the anti-establishment Yellow Vest movement are also calling for further rallies.
Short-lived disruption may be absorbed by markets, de Montpellier said, but a lasting hit to confidence would have a greater economic impact. She previously forecast French GDP growth of 0.3% in 2026 and 0.6% in 2027. Growth could fall short of those estimates if protests persist, confidence weakens further or market tensions intensify.
Past protests show that unrest can have a measurable effect on activity. France’s National Institute of Statistics and Economic Studies (INSEE) estimated that the Yellow Vest movement may have reduced GDP growth by 0.1 percentage point in the fourth quarter of 2018. The Bank of France estimated that strikes over pension reform in spring 2023 cut first-quarter GDP growth that year by about 0.1 percentage point.
De Montpellier said violent incidents could deter consumers from visiting city centres, lead tourists to postpone trips and prompt businesses to delay investment. Durré said French consumer confidence was already close to historic lows before the latest wave of protests, leaving the economy with limited capacity to absorb another shock. He highlighted two risks: sustained disruption weighing on GDP growth and political pressure leading the government to abandon key spending cuts. Either could widen the deficit and make the 5% of GDP target harder to meet.
Retail, tourism and transport face direct exposure
France’s CAC 40 index has fallen 4.5% over the past month. ING sees retail, hotels and tourism, transport and logistics as the sectors most directly exposed to unrest. Shops and shopping centres may face lower footfall, closures and lost sales. Hotels, cafés, restaurants and travel services could lose spending that customers cannot reschedule. Prolonged transport disruption would also hit carriers and logistics companies.
Shares in French retailer Carrefour fell more than 14% at one point on Wednesday. The company cut its profit outlook and reduced investment, citing social unrest and rising energy costs as pressures on consumer confidence and operations. Chief Executive Alexandre Bompard said France was in an “unprecedented situation.” ING, citing estimates from France’s chamber of commerce network, said more than 2,000 businesses had been directly affected as of Tuesday.
Kevin Thozet, a portfolio adviser and member of Carmignac’s investment committee, said the impact could spread beyond companies directly at the centre of the protests. For equities, higher borrowing costs raise banks’ cost of equity. If uncertainty persists, loan growth could slow and credit problems could increase.
French luxury companies generate most of their sales abroad, leaving LVMH with relatively limited direct exposure to the domestic market: France accounted for 8% of its 2025 revenue. However, damage to tourism could reduce duty-free spending, which Thozet said represents about 20% of LVMH’s revenue in France. He cautioned that another six months of political deadlock would be a long period for markets, the economy and businesses to contend with.