France: in better shape
|- 2017 growth forecast revised up to 1.6%
- Further improvement in the business climate in June
In just two months’ time, French growth prospects have improved substantially for 2017. In April, we were forecasting a slight acceleration in growth to an average annual rate of 1.4%, from 1.1% in 2016. Our updated June forecast calls for tronger
growth of 1.6%. The INSEE has just released its own figures as well, and it is expecting an identical growth rate. What has changed between our two forecasts? First of all, past growth, and the automatic impact of a more positive carry-over after Q1 2017 growth figures were revised upwards in late May, by 0.2 percentage points (from +0.26% q/q initially to +0.45%). Second, a series of upbeat indicators confirmed the solidity of the underlying trend: a net improvement in May confidence surveys, another upturn in the business climate in June, a sharp drop in the unemployment rate, and another solid rise in payroll employment in Q1. The expected acceleration in growth is fuelled by household residential investment, as well as foreign trade, which is forecast to make a less negative contribution to growth thanks to a rebound in exports. This improvement can be attributed to firmer world growth and the expected catching-up effect in aeronautics, tourism and the grain sector, after the major difficulties encountered in 2016. Growth would be even more robust if it were not for the expected slowdown in household consumption, and to a lesser extent, corporate investment. The average annual growth rate of corporate investment is indeed lowered by the expected payback, in Q2, of the end of the extra-depreciation measure. Even so, this hides an acceleration over the course of the year, fostered by favourable financing conditions, improved prospects for demand and higher corporate profit margins. As to the slowdown in household consumption, it can be traced to the upturn in inflation, which reduces purchasing power gains. Yet this negative effect is partly offset by the positive boost from the improvement in the job market situation.
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