France: Economy expands in 2017 at fastest pace since 2011
January 30, 2018
The French economy closed 2017 on a strong note, according to a first estimate released by the Statistical Institute (INSEE) on 30 January. GDP expanded 0.6% on a seasonally-adjusted quarter-on-quarter basis in Q4, coming in slightly above the revised 0.5% increase observed in Q3 (previously reported: +0.6% quarter-on-quarter). It was driven by faster growth in fixed investment and a recovery in the external sector. In annual terms, economic growth in 2017 jumped from 1.1% in 2016 to a six-year high of 1.9%. The acceleration in quarter-on-quarter and year-on-year terms confirms that the French economic recovery is progressing well and that drivers are in good shape to 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 a 1.1% quarter-on-quarter expansion to a 2.6% increase. Q4’s print was driven by higher overseas demand for transport equipment, particularly from the European Union. Conversely, imports grew a moderate 0.7% in Q4, a steep deceleration from Q3’s 2.4% expansion. As growth in imports slowed and growth in exports accelerated, the external sector’s contribution to growth improved from a 0.5 percentage-points deduction in Q3 to a 0.6 percentage-points 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. The smaller contribution to growth reflected a slowdown in private consumption, which 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 sharp deceleration. Growth in fixed investment, however, picked up steam from a 0.9% increase in Q3 to 1.1% in Q4, driven by increased investment in construction, manufacturing and services. Lax monetary conditions in the single-currency bloc and soaring business confidence throughout the fourth quarter boosted fixed investment.
France’s economic outlook is promising. Faster economic growth in its main trading partners will drive exports. Declining unemployment, low borrowing costs and above-average consumer and business confidence should buoy private consumption and fixed investment. Lastly, President Emmanuel Macron’s economic reform efforts will not only contribute to unleashing faster potential GDP growth in the medium- to long-term but will also generate strong confidence among businesses and consumers in the short-term.
France GDP Forecast
FocusEconomics Consensus Forecast panelists expect the economy to grow 1.9% in 2018, which is up 0.1 percentage points from last month's forecast. For 2019, panelists forecast 2.0% growth.