French Q3 GDP was surprisingly weak, according to the flash estimate that, as usual, doesn’t contain a break-down. Indeed, GDP was unchanged in Q3, significantly below the 0.5% M/M increase consensus expected. While bad, one should of course take into account the sharp 1.2% Q/Q increase in Q2. So averaging both quarters means that the French economy grows about at trend. Next week, German Q3 GDP will be released and it might be a strong figure, but given the French result, there are some downside risks for Q3 EMU GDP growth. We suspect exports and inventories to have been a drag on growth and maybe investments too. Consumption should be strong though.
September French industrial production fell 0.9% M/M and 0.7% Y/Y, sharply down from August’s 0.9% M/M and 1.4% Y/Y increase and from consensus estimate (0.4% M/M). This means production actually contracted in Q3, the first negative quarter since Q2 2005. It also suggests that the industrial sector had weak momentum going into Q4.
French HICP undercut expectations as it fell by 0.2% M/M in October to be up 1.2% Y/Y, down from 1.5% Y/Y in September. Consensus was expecting a flat monthly result. Declining energy prices was the driving force, but also food prices eased. At the same time, core inflation moved up to 1.2% Y/Y from 1% Y/Y in September.
The combination of French weak activity and low inflation data will raise concerns about the underlying strength of the EMU economy. We wouldn’t already draw too many conclusions from the French data, but they may signal that the time of upward surprised might be over. Unless other EMU countries report also very weak Q3 GDP data, there should be no impact on Short-to-medium term outlook for ECB policy.
