France ekes out meagre growth, accepts may not meet 2016 target

The French economy rebounded less strongly than expected in the third quarter, as consumer spending stalled, making the government's annual growth target all but impossible to reach, in a blow to president Francois Hollande ahead of the presidential election in April.

Consumer spending, the traditional engine of the €2 trillion economy, failed to register any growth for the second consecutive quarter, official preliminary data showed, in a sign deadly Islamist militant attacks including one in Nice in July may be weighing on morale and tourism spending.

With the economy eking out 0.2 per cent growth in the third quarter, following a small contraction in the previous three months and growth in the first quarter revised down to 0.6 per cent, the gross domestic product (GDP) carry-over from the first nine months of the year is 1.1 per cent.

Finance minister Michel Sapin acknowledged that made the government's 1.5 per cent GDP target for this year, on which the Socialist government based its budget, harder to reach.

“I won’t deny it, but it doesn’t call into question next year’s growth figures (also forecast at 1.5 per cent),” Mr Sapin told RTL radio.

Natixis economist Philippe Waechter said a 1.4 per cent rise in GDP in the fourth quarter would be needed to meet the 2016 target. "That'd be a bit strong, I think," he said.

The situation leaves less wiggle room to cut a public deficit to below the EU-mandated limit of 3 per cent next year and will feed criticism from the opposition which has accused the government of overstating next year’s growth forecast to increase spending ahead of the election.

A poll of 36 analysts surveyed by Reuters had forecast 0.3 per cent growth for the euro zone’s second-largest economy.

Growth was driven by companies replenishing their inventories, which added 0.6 points to national output. But trade shaved 0.5 points off gross domestic product (GDP), as imports rose much faster than exports.

On a brighter note, investment rose by 0.3 per cent after stagnating in the second quarter.

Mr Sapin said other factors may have weighed on growth in the third quarter, including strikes in the energy sector and a bad performance in its agricultural sector, one of France’s biggest trade surplus contributors, after rainy weather caused the worst wheat harvest in 30 years.

Barclays economist Francois Cabau called the rebound "uninspiring".

“As for 2017, we remain of the view that political risks in the country and abroad are likely to deter confidence, and thus growth, particularly hitting investment and stock building,” he said.

Weak household demand undermines the assertions made in recent months by Mr Hollande, who has hinted strongly that he will run for re-election, that the economy is getting stronger.

Polls show he would lag behind nearly all other well-known candidates.

Reuters