The French economy picked up speed in Q3, driven by the Olympic Games, but is expected to contract before the year's end, according to a forecast by the national statistics agency, INSEE.

The surge in tourists attending the Paris Olympics fuelled consumer spending in the eurozone's second-largest economy, offering temporary relief amidst political uncertainty following July's hung parliament, which unsettled businesses.

INSEE forecasts the economy to grow by 0.4% in the third quarter, up from 0.2% in the previous quarter, although this is a reduction from an earlier forecast of 0.5%, Reuters reports.

The agency attributed this growth largely to the Olympics, which are expected to contribute a 0.3% boost through ticket sales, television broadcasting rights, and increased spending by tourists on hotels and restaurants.

As the impact of the Olympics diminishes, INSEE forecasts a 0.1% contraction in the economy for the final quarter of the year, resulting in a full-year growth rate of 1.1%, which remains unchanged from previous estimates.

This forecast aligns with government projections, with Finance Minister Bruno Le Maire suggesting over the summer that growth might be slightly stronger than the official 1% forecast, thanks to the boost from the Olympics.

After weeks of difficulty in selecting a new prime minister, President Emmanuel Macron appointed conservative veteran Michel Barnier on Friday.

Barnier now faces the challenge of assembling a cabinet and drafting a 2025 budget, which is expected to encounter significant resistance in the fragmented post-election parliament.

With the political crisis showing no signs of easing, INSEE noted that businesses are likely to remain cautious, potentially delaying investment plans due to high interest rates.

INSEE noted that weakness in the German economy, France's largest trade partner, further complicates the outlook for French exporters.

However, lower inflation is expected to boost household purchasing power, partially countering the decline in consumer spending after the Olympics.

INSEE forecasts that inflation will stay below 2% for the remainder of the year, reaching 1.6% by December.