French growth recovers in third quarter, but slowly

PARIS (Reuters) - French economic growth picked up by less than expected in the three months to September despite a rebound in consumer spending, official data showed on Tuesday, putting pressure on the government’s full year growth forecast.

FILE PHOTO: General view of the skyline of La Defense business district behind Paris landmark the Arc de Triomphe and the Champs Elysees Avenue, France, January 13, 2016. REUTERS/Charles Platiau/File Photo

The euro zone’s second-biggest economy grew 0.4 percent in the third quarter, up from 0.2 percent in the previous three months, the INSEE statistics agency said in a first estimate for the period.

“Today’s outturn marks the return of where French GDP growth should be at this stage of the business cycle – above potential, absorbing slack – and with it, should mark the end of material underperformance against the euro area,” Barclays economist Francois Cabau said in a research note.

However, the reading fell short of an average estimate for 0.5 percent growth in a Reuters poll of 31 private sector economists, as well as INSEE’s own 0.5 percent forecast.

Economists said the reading meant the economy would need to grow by about 0.8 percent in the last quarter to attain the 1.7 percent rate the government is forecasting for the full year.

Morgan Stanley economist Matthew Pennil said fourth quarter growth was likely to be closer to 0.4 percent judging by recent business confidence surveys and despite a cut in workers’ welfare contributions this month.

“Volatility in quarterly growth this year has largely been driven by tax policy,” Pennil said.

“Measures that lowered household incomes early this year are only now being offset by reductions in social contributions, which are fuelling a recovery in consumer spending.”


Household spending, traditionally the motor of French growth, grew 0.5 percent in the third quarter after falling 0.1 percent in the previous three months, when strikes hit spending on transport in particular.

“We have a return to normal rather than the recovery of lost ground since the last quarter of 2017,” Euler Hermes economist Stephane Colliac told Reuters.

Business investment accelerated slightly to 1.4 percent in the quarter, remaining the main source of momentum as firms respond positively to President Emmanuel Macron’s pro-business reform push. Household investment, essentially new home purchases, declined in line with recent falls in housing starts.

Export growth outpaced that for imports, which meant that foreign trade added 0.1 percentage points to overall growth, while business inventory drawdowns subtracted 0.2 percentage points.

Reporting by Leigh Thomas; Editing by Luke Baker