The French economy is expected to return to growth in the first quarter, driven by a recovery in the service sector, according to the central bank's monthly outlook on Tuesday.

The Bank of France projects that the eurozone's second-largest economy will expand by 0.1-0.2% compared to the previous quarter, which saw a 0.1% decline in activity, with the services sector forecast to be the main contributor to this growth, Reuters news agency reports.

According to the central bank's monthly business sentiment survey of 8,500 firms, companies reported growing uncertainty due to domestic political turbulence and concerns over potential US tariff increases.

The findings also found that businesses raised prices in January at a slower pace than at the start of the past three years, while staffing challenges continued to decline across the private sector.

Furthermore, the research also indicated that economic activity is expected to slow in February, while manufacturing is likely to stabilise. Aircraft production is projected to grow, in contrast to the chemical and metalworking industries.

Meanwhile, demand in the construction sector remains weak, with companies reporting cautious investment in both individual and collective housing, as well as in public sector projects.

In December, the Bank of France revised its GDP growth forecast for 2025 down to 0.9% from the previously expected 1.2%. Economic growth is projected to rebound to 1.3% in both 2026 and 2027.

The central bank also anticipates inflation will stay below the European Central Bank's 2% target over the next three years, with a decline to 1.6% in 2025, followed by a slight increase to 1.7% in 2026.