France: Activity rebounds in Q1, growing more than expected
According to a preliminary estimate, economic activity rebounded in the first quarter of the year, with GDP growing 0.4% on a seasonally-adjusted quarter-on-quarter basis. The reading contrasted the 1.4% contraction logged in the fourth quarter of last year and beat market analysts’ expectations of a 0.1% expansion. On an annual basis, GDP declined 4.4% in Q1, softening from Q4’s 4.8% drop.
The first quarter’s upturn largely came on the back of an improvement in domestic activity. Fixed investment growth picked up pace in Q1, rising 2.2% on a quarterly basis (Q4: +1.3% s.a. qoq), while private consumption rebounded, growing 0.3% (Q4: -5.7% s.a. qoq). Moreover, government spending bounced back in Q1, rising 0.5% and contrasting Q4’s 0.1% fall.
On the external front, exports of goods and services contracted 1.5% in Q1 (Q4: +6.1% s.a. qoq), likely owing to renewed Covid-19 restrictions globally and the implementation of the new EU-UK trade agreement at the start of the year, following the end of the Brexit transition period. In addition, imports of goods and services contracted 0.1% in Q1 (Q4: +1.7% s.a. qoq). As such, the external sector deducted 0.4 percentage points from the overall GDP result, contrasting Q4’s 1.2 percentage-point contribution.
Although the French economy performed better than expected and avoided a technical recession in Q1, Tullia Bucco, economist at UniCredit, foresees a deterioration in Q2:
“Nonetheless, we expect that GDP will record, once again, a contraction in the current quarter, although its size remains uncertain. The four-week nationwide lockdown in April is expected to have weighed significantly on the pace of overall economic activity. The Bank de France estimates that the gap of economic activity with its pre-crisis level widened from -4pp to -7pp in April. Still, the French composite PMI improved significantly in April, driven by services, which moved back into expansion territory for the first time since August. Lacking hard data, available evidence remains mixed.”
Meanwhile, Samuel Abettan, junior economist at ING, pointed to a brightening outlook for the year as a whole:
“Once the restrictions are lifted, some of these savings should be able to contribute to the rebound in consumption, although of course precautionary savings should remain important. A recovery in tourism in Europe should also boost activity this summer. Industry is likely to continue its recovery in sync with parts of the global economy. […] All the ingredients for recovery seem to be coming together as fiscal and monetary policy support will continue throughout 2021. Against this backdrop, and again under the assumption of a continued steady improvement in the pandemic, the economic rebound will take off strongly in 2021. We expect GDP growth for the year 2021 to reach 5%, though we believe it will take until 2023 to return to the pre-pandemic level of activity.”