Consumption in France

France - Consumption

GDP growth moderates in the third quarter

According to a preliminary estimate, GDP growth eased to 0.2% on a seasonally adjusted quarter-on-quarter basis in the third quarter, from 0.5% in the second quarter.

Softer growth came as private consumption recorded flat growth in the third quarter (Q2: +0.3%), as the post-pandemic catch-up effects dissipated in tourism-related sectors. In addition, exports of goods and services growth fell to 0.7% in Q3, marking the worst reading since Q1 2021 (Q2: +1.3% s.a. qoq). Imports of goods and services growth picked up to 2.2% in Q3 (Q2: +1.2% s.a. qoq).

More positively, public consumption bounced back, growing 0.5% in Q3 (Q2: -0.1% s.a. qoq). Moreover, fixed investment growth picked up to 1.3% in Q3, from the 0.4% increase in the prior quarter.

On an annual basis, economic growth waned markedly to 1.0% in Q3, following the previous quarter’s 4.2% increase. Q3’s reading marked the slowest expansion since Q4 2020.

The positive growth print was partly thanks to the doubling in the growth rate of business investments. These investments, which were primarily in transport equipment, should go some way towards easing remaining supply chain hurdles. Therefore, this momentum should dissipate as supply chain tensions disappear. Moreover, rising financing costs make it unlikely that investment will continue to spur the economy ahead.

Commenting on the print, Tullia Bucco, economist at UniCredit Bank, noted that:

“In the face of the myriad of global economic headwinds Europe faces, the French economy remained resilient in 3Q22, driven by lingering momentum in services activity. However, this positive effect may soon wear off. The latest PMI data for October indicate that momentum in the services sector weakened and came close to a standstill while the downturn in manufacturing intensified. […]. Accordingly, the outlook for GDP growth is likely to weaken rapidly, although we expect that any possible contraction in GDP will be relatively mild, mitigated by substantial government support.”

On the outlook, Charlotte de Montpellier, senior economist at ING, highlighted that:

“[We] believe that a contraction of French GDP could be observed in the fourth quarter, as well as at the beginning of 2023. With investment at half-mast, risks to energy supply, continued high inflation, and an overall slowdown in demand for exports, it is difficult to expect a strong recovery in growth in the second half of 2023. We expect GDP to contract by 0.3% over 2023 as a whole, after rising by 2.5% in 2022.”

FocusEconomics Consensus Forecast panelists see the economy expanding 0.3% in 2023, which is down 0.2 percentage points from last month’s forecast, and 1.6% in 2024.