Economy rebounds in Q1 but remains soft

Inventories flatter GDP reading: According to a preliminary reading, GDP bounced back 0.1% on a seasonally adjusted quarter on quarter basis in the first quarter, contrasting the 0.1% contraction logged in the fourth quarter of last year. That said, this was solely due to higher inventories—perhaps as firms stocked up ahead of anticipated tariff hikes. In contrast, readings for private spending, government spending, fixed investment and exports all deteriorated. Moreover, France’s GDP growth was below market expectations and the Euro area average of 0.4%. On an annual basis, economic growth was stable at Q4’s 0.8% in Q1.

Broad-based weakness: Private consumption stagnated in Q1 (Q4 2024: +0.2% s.a. qoq). Government consumption growth was 0.1% (Q4 2024: +0.4% s.a. qoq). Meanwhile, fixed investment slid at a more pronounced pace of 0.2% in Q1, following the 0.1% decrease in the previous quarter. Exports of goods and services contracted 0.7% in Q1, marking the worst result since Q3 2023 (Q4 2024: +0.2% s.a. qoq). In addition, imports of goods and services growth moderated to 0.4% in Q1 (Q4 2024: +0.5% s.a. qoq).

Panelist insight: The economic outlook is downbeat, as ING’s Charlotte de Montpellier commented: “The additional customs duties in the US and their direct and indirect impact will delay the French economy's rebound. We estimate that the direct effect of a permanent 10% import duty in the US on French GDP (via a reduction in exports) will be around -0.1%. Adding to this are the effects of uncertainty, the global economic slowdown and more restrictive fiscal policy, all of which will weigh on French economic activity throughout the year. The cooling in the labour market is likely to limit the recovery in household consumption, and the savings rate is set to remain high. As a result, the French economy is likely to remain close to stagnation for the rest of the year.”

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