French consumers drive GDP rebound

The French economy grew 0

The French economy grew 0.8 per cent in the fourth quarter of 2004 as consumer spending posted its biggest quarterly rise in almost four years, while business investment and exports grew.

National statistics office INSEE confirmed the headline GDP figure at the top end of the range given in its initial "flash estimate" last week, which showed the economy grew between 0.7 and 0.8 per cent in the last three months of 2004.

That brought growth for the year as a whole to 2.3 per cent, up from 0.5 per cent in 2003 but short of the government's forecast of 2.5 per cent.

"French growth contrasts with that of the rest of continental Europe, notably Germany, which is on the verge of recession," said Mr Philippe Brossard, an economist at Euler Hermes.

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The French data also contrasted sharply with figures from Italy showing its economy unexpectedly shrank 0.3 per cent in the fourth quarter of 2004.

However, economists said the momentum was unlikely to last through 2005 and most saw the government falling short of its growth target of 2.5 per cent for this year.

The rise in consumption was driven largely by a series of one-off measures introduced by former Finance Minister Mr Nicolas Sarkozy in 2004 to boost the purchasing power of households.

Conservative Prime Minister Jean-Pierre Raffarin has pledged to cut the jobless rate by a tenth from its current level of 9.9 per cent, which is sharply above the euro zone average, but most analysts are sceptical that he will meet that goal.

"We have significant concerns about the strength of consumer spending in the near term at least, given the continuing lack of significant jobs growth," said Mr Howard Archer, chief European economist at Global Insight.

"We expect firms to be cautious in their employment and, to a lesser extent, investment plans for the time being, given squeezed margins and the current somewhat uncertain outlook," he added.

"Consequently, we think GDP growth will struggle to exceed two per cent in 2005."