World Economy

French Growth Accelerates in Q4

France failed to meet the government’s own 1.4% target.France failed to meet the government’s own 1.4% target.

French economic growth accelerated at the end of 2016, putting the country and the wider eurozone on a steadier footing at the start of a year over which political uncertainty looms.

Stronger consumer spending growth and a sharp rebound in business investment helped push French gross domestic product 0.4% higher quarter-on-quarter in the fourth quarter, national statistics agency Insee said. The figures were in line with economist forecasts, MarketWatch reported.

Weak agricultural production and sharp declines in tourism after terror attacks had dragged on the economy over the summer. In the third quarter, the economy expanded only 0.2% after a slight contraction in the second.

French Finance Minister Michel Sapin said 2016 ended on a positive note. “It is the sign of a recovery that is becoming sustainable.”

The firming of the French economy provides some stability as the country and the wider European Union head into an unpredictable political cycle. 

The UK is set to trigger a process to quit the EU in March, France will hold presidential and legislative elections in May and June, and Germany will hold its federal parliamentary election in September.

However, the end-of-year pick-up was not enough to push French growth for 2016 as a whole above the 1.2% registered in 2015, with 2016 GDP growth standing at 1.1%, INSEE said. With foreign trade acting as the main drag, it also failed to meet the government’s own 1.4% target on which it based its budget for this year.

Sapin nonetheless took heart in the data. “Household and business confidence stand at a very high level and are auguring a very dynamic start to 2017, in terms of activity as well as job creation,” he said in a statement to Reuters.

Consumer spending, the traditional engine of the €2 trillion economy, rebounded after barely registering any growth in the previous six months, which had been marred by strikes against labor reforms and lower tourist spending following a deadly Islamist attack in Nice.

In a positive sign for the coming year, investment spending sharply picked up, with companies ramping up investment by 1.3% in the fourth quarter, while households’ reached 0.9% as the property market improved.

Leading indicators such as Markit’s purchasing managers index showed activity in the French private sector has started the year on a solid footing, reaching levels not seen in more than 5-1/2 years in January.

“The big question mark over the horizon is whether economic activity will be affected prior to the oncoming presidential elections,” Diego Iscaro, economist at IHS Markit said in a note.

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