France: Q1 GDP growth revised upward; domestic demand drives fastest growth in one-year
May 30, 2016
The French economy picked up steam in the first quarter of this year underpinned by buoyant private consumption and investment. According to more complete data released by the Statistical Office (INSEE) on 30 May, growth in the first quarter was revised upward from the 0.5% initially reported to 0.6% over the previous quarter in seasonally-adjusted terms. Q1’s print marked a one-year high and followed Q4’s revised 0.4% increase (previously reported: +0.3% quarter-on-quarter). On a year-on-year basis, the economy expanded 1.4% in Q1, matching the print tallied in the previous quarter (previously reported: +1.3% year-on-year). Q1’s reading bodes well for President François Hollande. The beleaguered president is facing the biggest strikes in over two decades and the figures from the first quarter puts the economy on track to reach the 1.5% growth objective outlined by the government. In addition, the result is in line with his discourse that the recovery is picking up momentum.
The first quarter reading was mainly the result of solid domestic demand, which offset a negative contribution of the external sector. Private consumption expanded a robust 1.0% in Q1 (previously reported: +1.2% qoq), which came in above the flat reading tallied in Q4. An environment of low oil prices, recovering disposable income and low interest rates have propelled private consumption to its best reading since Q1 2006. Fixed investment growth jumped from 1.2% in the fourth quarter to a solid 1.6% expansion in the first quarter (previously reported: +0.9% qoq). Fixed investment benefited from a surge in business investment, which is being encouraged by tax breaks. Government consumption expanded a soft 0.4% in Q1 (Q4: +0.4% qoq).
The external sector continued to be a drag on the economy in the first quarter of the year. Exports tallied flat growth (Q4: +0.8% qoq) as demand for French transport equipment dropped sharply in the January to March period (previously reported: -0.2% qoq). Imports growth decelerated from 2.5% in Q4 to a tepid 0.6% in Q1 (previously reported: +0.5% qoq) as oil purchases declined sharply. As imports decelerated at a sharper pace than exports, the contribution of the external sector improved from minus 0.6 percentage points in the fourth quarter of last year to minus 0.2 percentage points in the first quarter of this year.
French growth prospects are improving, yet growing protests over labor reforms pose a downside risk. Ongoing protests have the potential to impact economic activity in the upcoming quarters. Despite the strikes, the economy is expected to remain on a stable footing. Consumers and businesses remain upbeat. In May, consumer confidence reached an over-nine-year high while the business confidence index remained stable at a seven-month high. In addition, low interest rates along with subdued inflation and positive figures from the labor market are expected to provide an important boost to fixed investment and private consumption.