French growth seen cooling in second-quarter, full-year outlook brighter

PARIS (Reuters) - French growth will slow in the second quarter after a strong start to the year, the central bank forecast on Tuesday, but surveys showing a pick up in industrial activity and investment means Paris’s full-year target still looks within reach.

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The socialist government has banked on a growth rate of 1.5 percent this year to start making a significant dent in unemployment, which at over 10 percent stands in the way of President Francois Hollande’s bid for a second term next year.

France’s economy will likely expand 0.3 percent between April and June, the Bank of France said in its first forecast for the period, less than the surprisingly strong 0.5 percent posted by the euro zone’s second-biggest economy in the first quarter.

With industrial production for March contracting by 0.3 percent and confounding expectations for an increase, Barclays economists said the strong first quarter reading was likely to be revised down by 0.1 percentage point.

“We expect some pay back in the second quarter after the good GDP figures in the first,” Helene Baudchon, economist at BNP Paribas in Paris said.

However, Baudchon said she did not expect a further slowdown.

Economist Ludovic Subran at credit insurance company Euler Hermes concurred, saying the March fall in industrial production was due to higher inventories and a drop in export volumes. He said stronger domestic demand had reduced the slack in factory production lines going into the second quarter.

The Bank of France’s business climate survey also offered some hope the weak industrial output for March was not a sign of nastier things to come.

Executives polled by the bank said they expected both industrial and service sector activity to pick up in May.

In the long-suffering construction sector, activity rebounded in April and was expected to grow further in May.

Perhaps the most promising sign for growth in the remainder of the year was a survey published by the INSEE national statistics office which showed industry executives planning to increase their investments by 7 percent in 2016.

The survey is seen by economists as a bellwether of corporate investment intentions and is closely watched by the government.

“Investment forecasts in the industry sector are very positive and show that they should remain, along with consumer spending, the main engine of growth for this year,” BNP’s Baudchon said.

Additional reporting by Yann Le Guernigou and Leigh Thomas; Editing by Richard Lough