France GDP Q2 2016


France: GDP growth stalls in Q2 on weak domestic demand

July 29, 2016

According to the first estimate released by the Statistical Office (INSEE) on 29 July, the French economy tallied flat growth in the second quarter of 2016 over the previous quarter in seasonally-adjusted terms. Q2’s reading came in below Q1’s revised 0.7% increase (previously reported: +0.6% quarter-on-quarter) and undershot market expectations of a 0.2% rise. Year-on-year, GDP growth inched up from 1.3% in the first quarter to 1.4% in the second quarter. The second quarter reading mainly reflects a predominantly broad-based decrease in all components of domestic demand, which more than undid the external sector’s positive contribution to growth.

Domestic demand was hampered by a series of one-off factors such as floods, massive strikes and labor union blockades in oil refineries. The 2016 UEFA European Championship soccer tournament did not give much impetus to the economy either, since most of the tickets were purchased in Q1. Overall, the contribution of domestic demand to economic growth dropped sharply from 1.0 percentage point in the first quarter to a flat contribution in the second quarter. Private consumption in Q2 dropped from a 1.2% expansion in Q1 to a flat reading. Fixed investment swung from a 1.3% expansion in the first quarter to a 0.4% contraction in the second quarter of the year, marking the worst reading since Q1 2014. Meanwhile, government consumption remained steady in Q2 at the 0.4% expansion tallied in Q1.

The external sector recorded a positive contribution as exports of goods and services declined at a softer rate than imports. Exports contracted 0.3% in Q2 (Q1: -0.3% q-o-q). Imports swung from a 0.5% increase in the first quarter to a sharp 1.3% drop in the second quarter, marking the biggest contraction in seven years. Overall, the external sector’s net contribution to economic growth improved from minus 0.2 percentage points in Q1 to plus 0.3 percentage points in Q2.

Despite the weak second quarter reading and heightened uncertainty due to Brexit, the government left its GDP forecast unchanged and still expects economic growth of 1.5% in 2016 and 2017. FocusEconomics Consensus Forecast panelists expect the economy to grow 1.4% in 2016, which is down 0.1 percentage points from last month's forecast. For 2017, panelists forecast 1.3% growth.

Author: Jean-Philippe Pourcelot, Economist

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France GDP Chart

France GDP Q2 2016 0

Note: Quarter-on-quarter changes of seasonally-adjusted GDP and year-on-year variation in %.
Source: National Institute of Statistics and Economic Studies (INSEE) and FocusEconomics Consensus Forecast.

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