U.S. Markets

France sees economic growth spurt from consumers and business

PARIS (Reuters) - French growth accelerated more than expected at the start of the year with the strongest increase in consumer spending since 2004 and a pick-up in business investment.

A city view shows the French flag above the skyline of the French capital as the Eiffel Tower and roof tops are seen in Paris, France, March 30, 2016. REUTERS/Benoit Tessier

The economy grew 0.5 percent in the first quarter, beating even the most optimistic forecast in a Reuters poll, as consumers splurged on clothes, cars and housing equipment, the INSEE national statistics agency said in a preliminary estimate of gross domestic product (GDP) on Friday.

Consumer spending was up 1.2 percent over the three months, with higher spending on heating after a mild end to 2015, also offering a boost and offsetting the impact of a global slowdown that hurt exports.

If consumers led the way in the quarter, however, economists particularly took heart in a 1.6 percent rise in business investment, the strongest increase in five years. Investment by companies in the manufacturing sector surged by 3.3 percent, the highest since the spring of 2006.

“It’s very good news, it shows companies are back on the offensive,” said Alexandre Mirlicourtois at Xerfi.

“It gives more solid grounds to the recovery, which is not only relying on consumption.”

“The rise in fixed investment growth was particularly noteworthy,” Raphael Brun-Aguerre of JPMorgan agreed, adding that he expected decent gains in the coming quarters.

Although a lower euro, rock-bottom interest rates and cheap energy prices have boosted French growth just like its euro zone peers, some also attribute the pick-up in investment to government measures.

Paris last year introduced the possibility for companies to write off 40 percent of their investments in productive assets, a one-off measure which was supposed to stop in April but was extended by a year.

“The expected extension of the tax write-off certainly had a positive effect,” Economist Axelle Lacan at COE Rexecode said.

The stronger French performance also contrasted with a slowdown in the United States and Britain, which both reported lower growth than France this week.

When expressed as an annualized growth rate like the American method, French GDP rose by 2.2 percent compared with 0.5 percent in the U.S.

France, however, has grown 3.5 percent accumulatively since its pre-crisis peak, compared with 10.2 percent for the U.S. and 7.3 percent for Britain, which was hit harder than France by the financial crisis in 2008 but rebounded more strongly.


The French reading still marked an acceleration from the 0.3 percent growth posted in the previous three months. With 1 percent of GDP carry-over at the end of March, the government’s 1.5 percent growth target for the full year appears within reach, barring a sharp slowdown for the remainder of the year.

Meeting that target is important for unpopular French President Francois Hollande and his 2017 re-election bid because 1.5 percent growth is generally considered by economists as the level where unemployment starts to ebb.

The data came at the end of a week in which the number of jobless people dropped by the most since 2000, lending credence to Hollande’s assertion on prime-time TV this month that “things are getting better”.

“Solid growth has been set off,” Finance Minister Michel Sapin said in a statement. “Our action is bearing fruit.”

A poll of 30 analysts surveyed by Reuters had forecast 0.4 percent growth for the euro zone’s second-largest economy in the three months to March, with the lowest estimate at 0.1 percent and the highest at 0.4 percent.

Domestic demand, which includes the consumer spending surge, added 0.9 points to GDP in the first quarter, up from 0.2 points in the previous one. Trade subtracted 0.2 points as both exports and imports suffered from a global slowdown.

A drawdown in business inventories also shaved 0.2 points off GDP having added 0.5 points last quarter.

For a graphic of GDP by contributions:

For further details from INSEE: here

Additional reporting by Yann Le Guernigou, Leigh Thomas and Ana Nicolaci da Costa in London; Editing by Andrew Callus/Jeremy Gaunt/Ed Osmond