French economy grows 0.5% in the first quarter

French growth accelerated more than expected at the start of the year with the strongest increase in consumer spending since 2004 and a pick-up in business investment.

The economy grew 0.5 per cent in the first quarter, beating even the most optimistic forecast in a Reuters poll, as consumers splurged on clothes, cars and housing equipment, the INSEE national statistics agency said in a preliminary estimate of gross domestic product (GDP) on Friday.

Consumer spending was up 1.2 per cent over the three months, with higher spending on heating after a mild end to 2015, also offering a boost and offsetting the impact of a global slowdown that hurt exports.

But if consumers were the stars of the show in the quarter, economists particularly took heart in a 1.6 per cent rise in business investment, the strongest increase in five years. More specifically, investment by companies in the manufacturing sector surged by 3.3 per cent, the highest since the spring of 2006.

"It's very good news, it shows companies are back on the offensive," said Alexandre Mirlicourtois at Xerfi. "It gives more solid grounds to the recovery, which is not only relying on consumption."

“The rise in fixed investment growth was particularly noteworthy,” Raphael Brun-Aguerre of JPMorgan concurred, adding that he expected decent gains in the coming quarters.

The stronger French performance also contrasted with a slowdown in the United States and Britain, which both reported this week a lower pace of growth than previously.

France, however, has grown 3.5 per cent accumatively since its pre-crisis peak at the end of March, compared with 7.3 per cent for Britain, which was hit harder than France by the financial crisis in 2008 but rebounded more strongly.

ACCELERATION

The French reading still marked an acceleration from the 0.3 per cent growth posted in the previous three months. With 1 per cent of GDP carry-over at the end of March, the government’s 1.5 per cent growth target for the full year appears within reach, barring a sharp slowdown for the remainder of the year.

Reaching that target is important for unpopular Hollande and his 2017 re-election bid because 1.5 per cent growth is generally considered by economists as the level where unemployment starts to ebb.

The data came at the end of a week that saw the number of jobless people drop by the most since 2000.

"Solid growth has been set off," finance minister Michel Sapin said in a statement. "Our action is bearing fruit."

A poll of 30 analysts surveyed by Reuters had forecast 0.4 per cent growth for the euro zone’s second-largest economy in the three months to March, with the lowest estimate at 0.1 per cent and the highest at 0.4 per cent.

Domestic demand, which includes the consumer spending surge, added 0.9 points to GDP in the first quarter, up from 0.2 points in the previous quarter, while trade subtracted 0.2 points as both exports and imports suffered from a global slowdown. A drawdown in business inventories also shaved 0.2 points off GDP having added 0.5 points last quarter.

Reuters