France: Economy posts steady growth in Q3
November 29, 2017
The French economy continued to expand at a steady pace in Q3. According to a second estimate released by the Statistical Institute (INSEE) on 29 November, GDP grew 0.5% on a seasonally-adjusted quarter-on-quarter basis, confirming the preliminary estimate released on 31 October. The quarterly print edged down slightly from the 0.6% increase observed in Q2. Third-quarter growth was driven by a strong domestic economy, which more than offset a dismal performance in the external sector. It also marked the fourth consecutive quarter in which quarter-on-quarter growth has matched or exceeded 0.5%, a first since 2010–2011. In annual terms, the economy jumped from 1.8% growth in Q2 to 2.2% growth in Q3, the highest rate since Q2 2011.
The domestic economy performed strongly on the back of solid quarter-on-quarter growth in private consumption and fixed investment, and positive inventory movements. Private consumption, which constitutes over 50% of the economy, accelerated from a soft 0.3% increase in Q2 to a revised 0.6% expansion in Q3 (previously reported: +0.5% quarter-on-quarter). The acceleration was supported by higher spending on manufactured goods and energy products due to an unseasonably cold September. Increased expenditure on manufactured goods is indicative of strong consumer confidence throughout the third quarter and also points to a recovering labor market, which has benefitted from the reforms enacted by former President François Hollande late in his term.
Growth in fixed investment decelerated but remained resilient nonetheless (Q3: +0.9% qoq; Q2: +1.1% qoq). The moderate slowdown reflects an unfavorable base effect in the construction sector following a strong performance in Q2. Unlike in the previous quarter, changes in inventories made a positive 0.5 percentage-point contribution to growth, contrasting the steep 0.5 percentage-point reduction observed in Q2. Overall, the domestic economy excluding inventory changes made a 0.6 percentage-point contribution to economic growth in the third quarter (Q2: +0.5 percentage points).
The external sector’s contribution to growth plummeted in the third quarter. Growth in exports halved from a revised 2.2% quarter-on-quarter increase (previously reported: +2.3% quarter-on-quarter) in Q2 to a 1.1% expansion (previously reported: +0.7% quarter-on-quarter). The pronounced slowdown in exports reflects a decline in overseas demand for manufactured goods, especially transport equipment. In contrast, growth in imports gathered pace (Q3: +2.8% qoq; Q2: +0.3% qoq). Overall, the external sector deducted 0.6 percentage points from growth in the third quarter, contrasting the 0.5 percentage-point contribution in the preceding quarter.
The positive quarterly reading comes as good news for President Emmanuel Macron’s administration. The spillovers from the former president’s labor law reform are perceivable in the labor market and have contributed to faster growth. This, coupled with positive survey-based data in the final quarter, should result in the economy picking up momentum and growing at a faster rate. The third-quarter print puts the economy on track to achieve the 1.8% growth target for 2017 outlined by the government, which would be a multi-year high. In turn, strong growth gives the government leeway to narrow the fiscal deficit and lower elevated public debt as it continues to implement reforms that should unleash faster growth in the medium term.
France GDP Forecast
FocusEconomics Consensus Forecast panelists expect the economy to grow 1.7% in 2017, which is up 0.1 percentage points from last month's forecast. For 2018, panelists forecast 1.6% growth.