France: Economic growth languishes in 2016 despite strong Q4 reading
February 28, 2017
The French economy closed 2016 on a strong footing. According to the third estimate released by the Statistical Office (INSEE) on 24 March, GDP growth ticked up from a soft 0.2% seasonally-adjusted quarter-on-quarter expansion in Q3 to 0.4% in the final quarter, matching preliminary estimates. The print, which matched FocusEconomics’ Consensus Forecast, reflects an across-the-board improvement in all components of GDP and suggests that the French economy is gaining traction after two disappointing quarters. Despite Q4’s growth, annual growth slowed to 1.1% in 2016 (2015: +1.2%). 2016’s print came in below government’s more-optimistic forecast of 1.4% and far under the Eurozone average. The disappointing print underscores the many challenges that plagued the French economy last year such as massive strikes against a labor reform bill that brought the country to a standstill and lingering weakness in key sectors owing to terrorists attacks.
Q4’s recovery was underpinned by the strong performance of the domestic economy. Growth in private consumption accelerated form a 0.1% expansion over the previous quarter in Q3 to a stronger 0.6% increase. Growth was buttressed by increased expenditure on engineered goods such as cars, and higher gas and electricity consumption owing to unseasonably low temperatures. An improving labor market, low interest rates and inflation as well as strong consumer confidence readings throughout the quarter also supported growth. Fixed investment growth picked up and expanded a revised 0.5% (previously reported: +0.4% quarter-on-quarter). Growth was buttressed by increased investment by households and non-financial corporations which benefitted from the ECB’s expansionary monetary policy and businesses’ anticipation of tax cuts on investments ending in April. Optimism among French businesses reached a pre-crisis high in Q4, which helped push fixed investment to its best result in 2016 since 2007.
The external sector rebounded strongly and made a positive contribution to growth after deducting 0.6 percentage points in Q3 (Q4: +0.1 percentage points). Exports expanded at the fastest pace in six quarters thanks to growing demand for transport equipment. In contrast, growth in imports slowed considerably from 2.7% to a revised 0.9% (previously reported: +1.0% qoq).
The strong quarterly print offers a glimmer of hope that the economy will shift into higher gear in 2017. Lower unemployment and rising wages will help offset growing inflation and keep private consumption solid. Strong credit growth and high optimism among French consumers and businesses should also act to boost growth. Nevertheless, the economic outlook is under pressure. Geopolitical and international economic uncertainty are expected to increase further as Brexit negotiations start and protectionist sentiment could grow. Likewise, the outcome of the presidential elections will have an important impact on the country’s growth outlook.