France: Economic growth disappoints in Q1
May 30, 2017
The economy started the year on a weak footing. According to the second estimate released by the Statistical Office (INSEE) on 30 May, GDP growth moderated from a 0.5% seasonally-adjusted quarter-on-quarter expansion in the final quarter of 2016 to a revised 0.4% increase in the first quarter of this year (previously reported: +0.3% quarter-on-quarter). In annual terms, the economy expanded 1.0% in the first quarter (Q4: +1.2% year-on-year). The quarter-on-quarter print, which matched FocusEconomics’ Consensus Forecast of 0.4%, was dragged down by a slowdown in the domestic economy and an abysmal performance by the external sector.
A sharp deceleration in private consumption and a contraction in manufacturing were the main reasons behind the weak performance of the domestic economy. Growth in private consumption plunged from a 0.6% expansion to a weak 0.1% increase in the first quarter. A sharp contraction in the cost of energy products owing to unseasonably warm temperatures during the winter months and purchases of manufactured goods were behind the weak expansion. The soft reading comes despite survey-based consumer confidence resting at a multi-year high throughout the first quarter. The revised 0.2% contraction in manufacturing (previously reported: -0.5% qoq) comes as no surprise given the weak industrial production readings in the first two months of the year. On the contrary, fixed investment grew a solid 1.2% (previously reported: +0.9% qoq) on the back of a strong increase in business and private investment, though it failed to provide much impetus. Overall, the contribution of domestic demand to economic growth in the first quarter dropped by 0.1 percentage points to 0.4%.
The external sector remains the weakest spot in the economy. Exports nosedived from a 1.0% expansion to a sharp 0.8% drop, an eight-year low, as overseas demand for transport equipment declined notably. Imports growth, on the other hand, picked up steam and accelerated on the back of higher purchases of refined petroleum products and other industrial material (Q4: +0.6%; Q1: +1.4% qoq). Overall, the external sector deducted 0.7 percentage points from growth (Q4: +0.1 percentage points).
Emmanuel Macron inherits a country that requires urgent and much-needed reforms to support faster growth. The reform outlook remains highly uncertain since the composition of the country’s legislature remains unknown and this will largely determine the amount of power the new president will have to pursue his agenda. On a more positive note, the latest survey-based data is positive. This should have a positive impact on the economy throughout this year and will become more noticeable as political uncertainty fades.