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French growth beats expectations in third quarter after Macron splashes out

PARIS (Reuters) - France’s economy defied forecasts for a slowdown in the third quarter after the government injected billions of euros of stimulus, boosting consumer demand and offsetting a slump in trade that could yet push neighboring Germany into recession.

FILE PHOTO: The financial district of La Defense with the Arche is seen during sunset near Paris, France, March 5, 2019. REUTERS/ Christian Hartmann

The resilience in French gross domestic product, which expanded 0.3%, will be good news for President Emmanuel Macron at a time of concerns about the impact of international trade disputes on the global economy.

It may also back up the view of the French government and others, including incoming European Central Bank President Christine Lagarde, that Germany should follow Paris’s example and spend more to support its economy.

Analysts surveyed by Reuters had forecast 0.2% growth for the French economy, the euro zone’s second-largest, in the three months to the end of September.

Many forecasters expect Germany, the largest economy in the bloc and France’s main trading partner, to have slipped into recession in the same three months by logging its second successive quarter of contraction.

Export-driven Germany is much more reliant on trade than France, whose economy was given an additional fillip by Macron’s decision to announce 10 billion euros in budget measures to quell the so-called yellow vest crisis earlier this year.

Most of that money went on boosting benefits for minimum-wage earning workers. Paris has also said it would cut taxes by more than 10 billion euros in total next year.

Barclays economist Francois Cabau said the first reading for GDP supported his “cautiously optimistic view on France”.

“We continue to think that the domestic fundamentals are well oriented and, in particular, private consumption should do well,” he said, adding that falling unemployment would keep growth going at a rate of 0.3% to 0.4% in the coming quarters.

Domestic demand was the main driver in the last three-month stretch, adding 0.5 percentage points to growth, while trade subtracted 0.4 points.

Household spending picked up, growing at a 0.3% pace in the third quarter after expanding 0.2% in the previous three months, while business investment slowed to an increase of 0.9% this quarter from a 1.2% gain in April-June.

The negative effect of trade reflected a faster increase in imports than exports.

Forward-looking economic indicators such as the purchasing managers index show French business activity has continued to expand this month, although morale among manufacturers fell to its lowest level since March 2015 this month.

Reporting by Michel Rose; Editing by Shri Navaratnam and Hugh Lawson