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Consumer Spending Boosts French Economy

Consumer Spending Boosts French EconomyConsumer Spending Boosts French Economy

France’s economy expanded faster than initially thought in the first quarter, as strong contributions from consumer spending and business investment propelled the eurozone’s second largest economy to its best performance in over a year.

Gross domestic product expanded 0.6% in the January-March period, compared with just 0.3% in the fourth quarter, the National Institute of Statistics and Economic Studies reported last week in a revised estimate. The revision was slightly above the advance estimate, which showed a gain of 0.5%. In annualized terms, the economy grew 1.4%, Economic Calendar reported.

The advance marked France’s fastest pace of expansion since the third quarter of 2015, a sign the economy was finally gaining momentum after years of weakness. The figures also marked the third consecutive quarter of growth for the French economy.

Consumer spending was the primary catalyst behind the growth, rising 1% on the quarter. Investment also accelerated 1.6%.

International trade subtracted 0.2 percentage points from first quarter GDP. It had subtracted 0.6 percentage points in the fourth quarter.

 Uncertain Target

The revised data align well with the French government’s full year growth target of 1.5%. The International Monetary Fund projects the French economy to expand just 1.1% this year, unchanged from 2015.That’s well below the eurozone average of 1.5%. Based on the first quarter figures, analysts are confident that that the French government’s target is all but assured, barring any unforeseen developments.

Surveys of purchasing managers last month also pointed to firmer growth in the second quarter. France’s Composite Purchasing Managers’ Index, which tracks the performance of the country’s manufacturing and service economies, accelerated to a seven-month high in May. The Markit France Composite PMI improved to 51.6 from 50.6 in April on a scale where a reading above 50 signals economic expansion.

 Challenges

Markit’s data showed that a solid uptick in service activity offset continued weakness in the manufacturing sector. However, job creation remained anaemic, while business expectations also softened.

Despite an improving outlook, France is plagued with a number of challenges. HSBC refers to France as “Europe’s labor laggard” due to its “entrenched … opposition to labor market reforms.”

France’s unemployment rate stood at 10.2% in the first quarter, little changed over the past three years. This suggests that French businesses suffer from weak demand, which limits their ability to hire new staff. At the same time, France suffers from extremely high labor costs and skills shortages, both of which stand in the way of job creation and economic growth.

Financialtribune.com