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French Economy Stagnates
World Economy

French Economy Stagnates

France’s economy stagnated in the second quarter as European Central Bank stimulus and lower oil prices failed to revive business confidence and investment.

Gross domestic product was unchanged after increasing a revised 0.7% in the previous three months, the country’s statistics office in Paris said Friday. Economists had forecast a 0.2% gain, according to a Bloomberg survey. The euro-area economy probably grew 0.4%, economists said before a separate report due later. The first quarter’s rise in France had initially been reported as 0.6%.

The stagnation marks the first time in a year that the French economy has failed to grow. The country’s performance is forecast to lag behind that of Germany and the 19-nation currency bloc this year. As President Francois Hollande tries to revive growth and lower unemployment in the euro-area’s second-biggest economy, he is cutting corporate taxes and used emergency powers to force through parliament a bill that gives breaks to businesses.

“Even if the general outlook has improved–a weaker euro and lower energy prices–it has not yet materialized in stronger domestic demand,” Julien Manceaux, an economist at ING Bank in Brussels, said before the data were published. “The recovery is likely to continue to unfold in coming months, albeit at a slower pace than expected.”

  Consumer Spending

In the second quarter, consumer spending rose just 0.1% after rising 0.9% in the previous quarter. Investment fell 0.3% after being flat the previous quarter. Exports improved, rising 1.7% after gaining 1.3%, driven by transportation equipment.

French industrial production unexpectedly fell 0.1% in June, data last week showed. Markit Economics said its manufacturing index dropped back below 50 in July, indicating contractionary conditions. A broader gauge that includes services was at the lowest in three months.

“Confusion about government policy can still be seen in the low level of confidence and investment,” said Francois Cabau, an economist at Barclays in London. The Bank of France said Monday that its survey of manufacturing executives showed sentiment was unchanged in July. At 98, the index remains below its 20-year average. Most economists expect France to achieve the government’s target of 1% growth this year. While that would be the fastest pace since 2011, it compares with 1.5% expected for the euro region and 1.8% for Germany. The Italian economy, the third largest in the bloc, is seen expanding 0.7%.

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