French Growth Slows in Q1

Growth slowed in the first quarter, indicating French President Emmanuel Macron’s economic honeymoon is coming to an end, and raising questions over the long-term strength of the eurozone’s recovery.

Gross domestic product in the eurozone’s second largest economy expanded only 0.3% in the first three months of the year from the final quarter of 2017, statistics agency Insee said Friday. Throughout 2017, France’s quarterly growth had been consistently above 0.5% and clocked 0.7% in the final quarter, MarketWatch reported.

France’s first-quarter growth figures are the latest source of concern for policymakers in the eurozone after tumbles in industrial output, softer consumer spending growth and declining confidence levels at the start of the year. A prolonged soft patch would dash expectations the currency bloc is on track to repeat the bumper growth it recorded in 2017.

The signs of weakness at the start of 2018 come as the eurozone also faces growing headwinds from volatile currency swings, rising raw-material prices and the possibility of a trade war if President Donald Trump does not extend exemptions from steel and aluminum tariffs next week.

In France in the first quarter, growth in business investment slowed to 0.5% quarter-on-quarter from 1.6% at the end of 2017, Insee said. Investment in manufactured products fell 0.9%. Consumer spending—the traditional motor of France’s economy—rose only 0.2% in the first quarter.

French exports declined 0.1% quarter-on-quarter and trade overall made zero contribution to French growth.

The strengthening euro—up 11% against the dollar in the past year—is another possible restraint on growth. L’Oreal SA earlier this month attributed a first-quarter drop in revenue to exchange-rate effects, despite its fastest sales growth in eight years.

Still, there are some encouraging signs that growth can pick up afresh in the second quarter. The purchasing managers’ index for French manufacturing and services rose in April, IHS Markit said earlier this week. New orders increased for a 22nd month.

Meanwhile, France reported a public deficit of 2.6% of GDP in 2017, below the EU limit of 3% for the first time in a decade. The INSEE national statistics agency also reported 2% growth in 2017, France’s highest in six years, rfi reported.

The deficit figure, which beat expectations of 2.9% of GDP, is a fresh sign the eurozone’s second-biggest economy is experiencing a rebound under Macron. In 2016, the deficit stood at 3.4% of GDP.