France: GDP rebound moderates - ING

Geoffrey Minne, Economist at ING, explains that the French GDP growth disappointed in 1Q17 with growth of 0.3% QoQ after 0.5% in 4Q16 while on a year-on-year basis the 0.8% GDP growth is the slowest figure since 4Q14.

Key Quotes

“Another signal hinting that it will take time, a new Government and reforms, to see a significant growth acceleration.”

“Figures published this morning showed that French GDP growth slowed down in the first quarter of 2017. GDP growth reached 0.3% QoQ after 0.5% in 4Q16. Important to note that the previous quarter was revised upwards by one tenth. YoY, GDP growth remains stuck at 0.8%. That said, in aggregate these two last quarters are not that bad as they followed six months of near-stagnation (-0.1% and 0.2% QoQ respectively in 2Q16 and 3Q16).”

“The disappointment mainly comes from private consumption growth, at 0.1% QoQ in 1Q17 after 0.6% QoQ in 4Q16. Despite the fact that consumer confidence has slowly been recovering since 2015 and is now at levels not seen since 2007, the first quarter might have been dented by the political uncertainty. The outlook for 2017 remains however relatively positive as unemployment is gradually coming down which, as confidence surveys show, is now felt by households. At this stage however, it is still hard to see private consumption growth overtaking its 2016 growth (1.8%) in 2017.”

“On a more positive note, investment saw some improvement in 1Q for a third consecutive quarter. The improving sentiment and the level of interest rates allowed for housing investments to continue their recovery for the 8th quarter in a row at 0.9% QoQ. This contributed to total investment growth in 1Q17, which came out positive at 0.9% QoQ. After the rebound registered in 4Q16, business investments accelerated further in 1Q17 (by 1.3% QoQ after -0.1% and 0.1% respectively in 2Q16 and 3Q16).”

“The business confidence index from the INSEE keeps on improving and recently reached its highest level since 2011. This development surely drives companies to invest, though it might come as a surprise as one might think that some companies are keeping powder dry until the Presidential election outcome. Although a Le Pen victory looks unlikely, it remains to be seen which kind of support Emmanuel Macron would get in the Assembly after June’s legislative elections. Only then French companies will have a better idea of which reforms and fiscal support they can expect.”

“Finally, net exports were a drag on GDP growth as imports rebounded by 1.5% while export growth decreased by 0.7% (the lowest figure since 2009). We expect external trade to be a drag on GDP growth in 2017.”

“All in all, French growth has slowed from 1.2% in 2015 to 1.1% in 2016 and the acceleration should be very limited this year; we expect it to reach 1.3%. Afterwards, if the new government can take advantage of the recovery to implement reforms, GDP growth could accelerate towards 1.7% in 2018. On this front, after the victory of Mr Macron and Mrs Le Pen in the first round of the election last week, the next steps are the second round on 8 May, when one of these two will be chosen. Then, on 18 June, the new National Assembly will be constituted which should allow for the formation of a new government. However, this government is likely to be less stable than the previous ones as the next President will have to find support for his/her reforms outside his/her own party, as neither En Marche! nor the FN are likely to gather a governing majority in the Assembly. It is therefore too early to assess the potential support of future policies on the growth outlook.”