October 5, 2017 / 4:06 PM / in 9 months

Out of the doldrums, investment boom set to lift French growth to six-year high

PARIS (Reuters) - Surging investment has put the French economy on course for its best growth since 2011 this year, the INSEE official statistics agency said on Thursday, slightly raising its earlier estimate.

The financial and business district of La Defense is seen near Paris, France, September 22, 2017. REUTERS/Benoit Tessier

INSEE forecast the economy would now grow 1.8 percent this year, finally leaving behind the low growth rates of around 1.0 percent that France has struggled to break out of in recent years.

The forecast topped INSEE’s estimate of 1.6 percent in June and also exceeded the 1.7 percent the government is expecting.

INSEE also said it expected the economy to cruise ahead at a quarterly growth rate of 0.5 percent through to the end of the year, logging five consecutive quarters at that rate.

Households and companies were ramping up investment due to low interest rates and relatively high business confidence, lifting the overall economic outlook, INSEE said in a quarterly report.

French business confidence has surged since President Emmanuel Macron won election in May on a reform agenda, while French companies have also benefited from a broader rebound in euro zone economies.

Household investment - primarily new home purchases - would hit an 11-year high of 5.0 percent this year while business investment would reach 3.9 percent as companies expand capacity to keep up with growing demand, INSEE estimated.

As tourist numbers recover following several tough years with global trade improving, exports were seen rebounding in the second half of the year despite the euro’s strength, with the euro up by some 11 percent so far this year against the dollar.

However, strong imports, fueled by firm demand at home, would mean that overall foreign trade would remain a slight drag on the economy, though less than in recent years.

Consumer spending growth would ease as inflation ate into households’ purchasing power, INSEE said, predicting consumer prices would rise 1.0 percent this year compared with only 0.2 percent last year.

On the labor market, private sector payrolls were seen growing by 208,000 this year, although growth slow toward the end of the year as the government reins in subsidized jobs.

The overall improvement would bring the jobless rate down to 9.4 percent by the end of the year, compared with 10 percent at the end of last year.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta/Jeremy Gaunt

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