France: Economy fails to gain traction in Q3
October 28, 2016
According to the first estimate released by the Statistical Office (INSEE) on 28 October, the French economy swung from a 0.1% contraction in the second quarter to a soft 0.2% expansion in the third quarter in seasonally-adjusted terms. Q3’s reading undershot market expectations of a 0.3% rise. Year-on-year, GDP growth slowed from 1.3% in Q2 to 1.1% in Q3, the slowest rate in one year. The third quarter print mainly reflects a mild acceleration in fixed investment, which more than offset a stagnation in private consumption and a negative contribution of the external sector to growth.
Domestic demand in Q3 failed to improve on its weak performance in the second quarter. Overall, the contribution of domestic demand to economic growth remained unchanged at the 0.1% reading observed in Q2. Looking at the components, private consumption was flat in the third quarter (Q2: 0.0% quarter-on-quarter). The quarterly reading reflects a sharp contraction in spending on household equipment and energy consumption owing to unseasonably low temperatures. Fixed investment edged up from a flat reading in Q2 to 0.3% growth in Q3 thanks to solid investment by the government and households. Meanwhile, government consumption remained steady in Q3 at the 0.4% expansion in Q2.
The external sector recorded a negative contribution to GDP as growth in imports outpaced exports. Exports expanded 0.6% in Q3 (Q3: +0.2% q-o-q). Imports rebounded from a 1.7% drop in the second quarter to a strong 2.2% expansion in the third quarter. The surge in imports was driven by strong demand for raw hydrocarbons and transport equipment. Overall, the external sector’s net contribution to economic growth deteriorated from plus 0.6 percentage points in Q2 to minus 0.5 percentage points in Q3.
The modest growth figure does not bode well for beleaguered President François Hollande and his ruling party ahead of next year’s presidential election. The government finally admitted that it will be very challenging to achieve this year’s target of 1.5% economic growth, which it had hoped would demonstrate that the economy had recovered from the 2008-2009 financial crisis. The government still claimed it should meet its fiscal consolidation targets despite Q3’s result, but other government institutions such as INSEE said that subdued growth makes the deficit reduction target difficult to achieve.