France: Economic growth steady in Q2
August 29, 2017
The French economy continues to perform well, as confirmed by the second estimate of economic growth released by the Statistical Institute (INSEE) on 29 August. On a seasonally-adjusted quarter-on-quarter basis, GDP expanded 0.5% in the second quarter. In annual terms, the economy leaped from a 1.1% expansion in Q1 to 1.7% in Q2, which is an almost six-year high. The quarterly print was in line with the preliminary estimate and the FocusEconomics forecast, and it marks the third consecutive 0.5% expansion. It also indicates an end to the recent volatility in quarter-on-quarter growth, where expansions were frequently followed by sharp decelerations. Q2’s increase was driven by the external sector’s strong performance and healthy growth on the domestic side. The second quarter print means that the economy is on track to hit the target growth of 1.6% set by the government in early July.
Notably, the external sector rebounded on the back of soaring exports and weaker growth in imports. Exports went from a 0.9% decline in Q1 to a strong 2.5% expansion in Q2 (previously reported: +3.1% quarter-on-quarter). The increase in exports was driven by stronger demand in overseas markets for transport equipment and refined petroleum products. Imports expansion slowed to a revised 0.4% due to a decline in purchases of refined petroleum and other industrial material (previously reported: +0.2% qoq). Overall, the external sector contributed 0.6 percentage points to growth in the second quarter, contrasting the 0.6-percentage-point deduction observed in the preceding quarter.
Compared to the external sector, the domestic economy had a slightly more muted performance. Private consumption, which constitutes over 50% of the French economy, expanded a soft 0.3%. Although the reading marked a slight acceleration from Q1’s 0.1% increase, private consumption growth was dented by a pronounced slowdown in services, particularly in restaurant and accommodation services, as the tourism sector continues to suffer from the impact of last year’s terrorist attacks. Fixed investment, on the other hand, decelerated from a 1.3% expansion in the first quarter to 0.7% in the second quarter. The decline largely reflects a base effect as a tax deduction scheme on investment expired in April. Finally, government consumption accelerated from 0.3% to 0.4%.