U.S. Markets

French economy shrinks in fourth quarter as strikes bite

PARIS (Reuters) - The French economy unexpectedly shrank in the final quarter of last year as manufacturing output slumped in the face of strikes over an unpopular pension reform, putting more pressure on President Emmanuel Macron.

Macron has so far been able to point to resilient growth and job creation to justify his pro-business reforms. But he faced a wave of protests over the last year, first from the “yellow vests” movement and now from those opposed to his plans to streamline the French pensions scheme.

The French economy, the second-biggest in the euro zone, shrank 0.1% in the quarter from the quarter before, when it grew 0.3%, data from INSEE showed on Friday.

Economists in a Reuters survey had forecast on average growth of 0.2%. None of the 33 polled had expected anything weaker than 0.1% growth. FRGDPP=ECI

Over 2019, the economy grew 1.2%, less than the 1.3% INSEE had forecast in December.

French Finance Minister Bruno Le Maire blamed the pension protests - which began in December - for the slowdown.

“The strikes in December put a brake to France’s growth in the last quarter of 2019. Some of our infrastructure, such as the ports, the railway network and petrol depots, were impacted,” Le Maire said.

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However, Le Maire said he considered the slowdown temporary and that the fundamentals for French economic growth were “solid”.


Data this week showed French unemployment fell in the fourth quarter to its lowest since late 2013, while French consumer confidence has been relatively resilient.

Analysts at British bank Barclays backed Le Maire’s view. “We think this is likely to be a one-off, and thus remain confident in our cautiously optimistic outlook,” they wrote.

But AvaTrade chief market analyst Naeem Aslam said the French slowdown cast doubt over the European Central Bank’s views on the euro zone economy.

“With the U.S. renewing threats of raising duties last week, and the UK leaving the EU, it is difficult to digest how the bank contemplates that the risk to the outlook is less pronounced,” Aslam said.

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The strikes in December and January, led by those protesting against Macron’s pension overhaul, hit manufacturing production particularly hard. Manufacturers cut output 1.6% in the quarter as the strikes weighed and a refinery underwent maintenance. Warm temperatures also affected electricity production.

As manufacturers’ demand for components and raw materials slowed, overall imports fell 0.2%. Exports fell at the same rate, and companies drew on inventories to meet demand rather than make new goods.

Domestic demand contributed 0.3 percentage points to growth in the quarter, but that was more than erased by the 0.4% percentage point loss from inventory drawdowns. Foreign trade had a neutral impact.

INSEE said consumer spending growth had slowed to 0.2% in the quarter from 0.4% in the previous three months, as outlays on transport - which bore the brunt of the strikes - dropped 2.0%.

With the international outlook clouded by trade tensions, business investment growth slowed to 0.3% from 1.6% in the third quarter.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta and John Stonestreet