France: Economic growth picks up steam in Q4
March 26, 2018
The French economy closed 2017 on a strong note, as confirmed by the third estimate for fourth-quarter growth released by the National Statistical Institute (INSEE) on 26 March. GDP expanded a revised 0.7% on a seasonally-adjusted quarter-on-quarter basis (previously reported: +0.6% quarter-on-quarter), 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 GDP growth jumped to a six-year high of 2.0%, 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 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 2.5% increase in the last quarter (previously reported: +2.4% qoq). Exports were driven by increased external demand for transport equipment, particularly from the European Union. Conversely, imports grew a soft 0.3% in Q4, 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 0.7 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, as a slowdown in private consumption 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 from 0.9% in Q3 to a revised 1.1% in Q4 (previously reported: +1.2% 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 economy is expected to expand maintain a solid growth rate in 2018 and 2019. Faster growth in key trading partners will drive exports, while declining unemployment and elevated consumer confidence should buoy private consumption. The 50-billion euro investment fund set to be launched this year, along with changes in the country’s taxation laws, will foster investment growth. Growth in 2018 could, however, be affected by ongoing strikes against the government’s plans to restructure the public service and reform the public railway company. Massive protests in 2016 caused the economy to contract in quarter-on-quarter terms in the second quarter, and a similar situation could occur again this year if strike mobilization is strong and persistent. As a result, the government must tread carefully between pushing through deep-seated reforms to unleash faster growth in the medium- and long-term and appeasing strikes to sustain economic growth in the short-term.
France GDP Forecast
FocusEconomics Consensus Forecast panelists expect the economy to grow 2.0% in 2018, which is up 0.1 percentage points from last month's forecast. For 2019, panelists also forecast 2.0% growth.