France: Growth steady through year-end despite ‘gilets jaunes’ protests
France’s economy grew 0.3% quarter-on-quarter and on a seasonally-adjusted basis in the fourth quarter of last year, according to a first estimate released by the Statistical Institute (INSEE). Despite the onset of the ‘gilets jaunes’ protests, which brought much of the country to a standstill for several weeks in November and December, growth through year-end was stable from a quarter earlier (Q3: +0.3% quarter-on-quarter s.a.) and landed in-line with analysts’ expectations. On an annual basis, growth slowed to 0.9% from 1.3% in the third quarter. Full-year growth, meanwhile, came in at 1.5%, down sharply from 2.3% in 2017.
Domestic demand slowed considerably amid the ‘gilets jaunes’ political crisis. Household spending stagnated (Q4: +0.0% qoq s.a.; Q3: +0.4% qoq s.a.) in line with the plunge in consumer confidence, and as demonstrations hurt foot traffic during crucial holiday-shopping weeks. Fixed investment also felt the pinch (Q4: +0.2% qoq s.a.; Q3: +1.0% qoq s.a.) as household investment contracted for another quarter on weaker construction metrics, although corporate investment was still up modestly despite waning business confidence. For its part, government spending accelerated in the quarter (Q4: +0.3% qoq s.a.; Q3: +0.2% qoq s.a.).
External demand, meanwhile, was unexpectedly upbeat. Export growth surged (Q4: +2.4% qoq s.a.; Q3: +0.2% qoq s.a.) on the euro’s weakness against the dollar, and exports to the U.S. helped offset more sluggish trade with the remainder of the Eurozone. Import growth, on the other hand, rebounded (Q4: +1.6% qoq s.a.: Q3: -0.7% qoq s.a.) but remained subdued on tepid consumption and investment domestically. Taken together, the current-account deficit shrank and the external sector’s contribution to growth eased to 0.2 percentage points (Q3: 0.3 percentage points).
Commenting on the year ahead, Julien Manceaux, a senior economist at ING, noted:
“Domestic demand will still take time to recover from the abnormal levels of anxiety shown in consumer surveys at the beginning of the year. Given the weaker European economic backdrop that is expected in 2019 and 2020, we believe GDP growth will return to potential, or 1.3% [year-on-year], in both years. If domestic demand recovers slightly, it is likely that external trade will weigh on growth (as it usually does) as the euro catches up some ground against the U.S. dollar over the next two years and less dynamic world trade affects demand for French exports. Note that on this front, all forecasts are made under a ‘no hard Brexit’ assumption.”