France: Economic growth accelerates in Q4
January 30, 2018
The French economy closed 2017 on a strong note, according to the second estimate for the fourth quarter released by the National Statistical Institute (INSEE) on 28 February. GDP expanded 0.6% on a seasonally-adjusted quarter-on-quarter basis, confirming the preliminary reading; growth was slightly above the 0.5% increase observed in the third quarter. Activity in Q4 was driven by a faster increase in fixed investment and a recovery in the external sector. In 2017 overall, growth jumped to a six-year high of 2.0% (previously reported: +1.9%), up from 1.1% in 2016. The acceleration in quarter-on-quarter and year-on-year terms confirmed that the French economic recovery is well under way, and the domestic economy and external sector should spur solid growth in upcoming quarters.
Q4’s print was likewise driven by a rebound in the external sector and steady growth in the domestic economy. Growth in exports jumped from 1.0% quarter-on-quarter in Q3 to a revised 2.4% increase in the last quarter (previously reported: +2.6% quarter-on-quarter). The Q4 exports figure was driven by increased external demand for transport equipment, particularly from the European Union. Conversely, imports grew a soft 0.3% in Q4 (previously reported: +0.7% qoq), a steep deceleration from 2.2% in Q3. As growth in imports slowed and growth in exports accelerated, the external sector’s contribution to growth improved from a 0.4 percentage-point deduction in Q3 to a 0.6 percentage-point contribution in Q4.
The domestic economy contributed 0.5 percentage points to growth in the fourth quarter, slightly below the 0.6 percentage-point contribution made in the third quarter. A slowdown in private consumption more than offset faster growth in fixed investment. In quarter-on-quarter terms, growth in private consumption halved from 0.6% in Q3 to 0.3% in Q4; contractions in components including energy products and consumer goods were behind the deceleration. Growth in fixed investment, however, picked up steam from 0.9% in Q3 to 1.2% in Q4 (previously reported: +1.1% qoq), driven by increased investment in construction, manufacturing and services. Favorable credit conditions in the single-currency bloc and soaring business confidence throughout the fourth quarter boosted fixed investment.
France’s economic outlook is bright. Faster growth in key trading partners will drive exports, while declining unemployment, easy access to credit, and higher confidence should buoy private consumption and fixed investment. President Emmanuel Macron’s economic reform efforts should not only help unleash faster potential GDP growth in the medium- to long-term but also generate strong confidence among businesses and consumers in the short-term.