French economy avoids contraction


France's economy unexpectedly avoided its first quarterly contraction in more than three years as both companies and government increased spending.

Gross domestic product was unchanged in the second quarter from the first, national statistics office Insee in Paris said today.

Economists had forecast a 0.1 per cent decline but GDP rose 0.3 per cent from a year earlier.

The figures offer some respite to president Francois Hollande as he seeks to cut France's budget deficit in the face of recessions in neighbouring Italy and Spain.

France's three- year economic expansion has set it apart from its southern neighbours, where Europe's sovereign debt crisis has driven up borrowing costs.

In Germany, GDP rose 0.3 per cent in the second quarter from the first, a report showed today.

"Investment by non-financial corporations is recovering after having dropped at the beginning of the year," Insee said. "In the public sector, investment is rising, returning to normal after being hurt by harsh weather in the first quarter."

Gross fixed capital formation rose 0.6 per cent in the second quarter from the first, when it dropped 0.8 per cent, today's data showed.

Public sector expenditure advanced 0.5 per cent and exports increased 0.2 per cent from the previous three months. Imports jumped 1.8 per cent in the second quarter. French household spending fell 0.2 percent.

"Consumer spending fell back slightly," Insee said. "This is notably about a decline in purchases of textiles and leather goods, though spending on services also declined, mainly on housing and restaurants."

French finance minister Pierre Moscovici said that the prospects for growth in the third and fourth quarter are "more positive" than they were in the first half of the year.

Mr Moscovici said the government is maintaining its forecast for Europe's second-largest economy to expand 0.3 per cent this year and 1.2 per cent in 2013.

"France isn't in a recession when many of its partners are," he said today on Europe 1 radio. "We're working very hard to generate a return to growth."

Mr Moscovici also said that he has asked for a report on gasoline prices to be delivered by August 28th and that he will meet with retailers and refiners to discuss price transparency after that.