French business confidence fell again in February. The overall business climate moved below its long-term average, with services among the weakest areas.
This weaker climate points to softer near-term economic activity. It implies GDP growth in the first quarter of 2026 may struggle to beat the 0.2% pace recorded in the fourth quarter of 2025, and it could be slower.
Growth Outlook For 2026 And 2027
For the full year 2026, GDP growth is still projected at around 1%. An expected rise in real wages may support household consumption and investment, if confidence remains steady.
For 2027, growth is forecast at 1.1%. Political and fiscal risks are described as high.
The further drop in French business confidence suggests the economic slowdown from late 2025 is carrying over into the new year. This weaker outlook for the first quarter implies that French equities could face headwinds in the immediate future. We should consider strategies that benefit from stagnant or falling prices, such as buying puts on the CAC 40 index.
This view is supported by the latest data showing the HCOB Eurozone Services PMI remains in contraction territory at 48.9, underscoring the specific weakness in the services sector. Given that the CAC 40 is already down 1.5% this month, selling call spreads could be a prudent way to capitalize on limited upside potential. Any rallies are likely to be capped until a clearer growth picture emerges.
Euro And Risk Positioning
This localized French weakness could also create a drag on the Euro, as France is a cornerstone of the bloc’s economy. The EUR/USD exchange rate has been sensitive to growth differentials between the Eurozone and the United States. We might consider short-term bearish positions on the currency, especially if upcoming inflation figures don’t give the European Central Bank a reason to sound more aggressive.
However, any bearish stance should be tactical and short-term, as the forecast for a modest rebound to 1% growth for the full year remains. This is a similar pattern to what we saw in 2023, where a soft start to the year was eventually overcome by improving conditions. This suggests that option positions should probably be set to expire before the second half of the year.
The disconnect between a weak first quarter and a more hopeful outlook for the rest of the year creates uncertainty, which typically leads to higher market volatility. Buying calls on a volatility index like the VSTOXX could be an effective hedge against a sudden market downturn. This strategy would protect portfolios if the current slowdown proves to be worse than anticipated.
