Surprisingly strong consumption lifts French GDP

By Daniel Flynn

PARIS (BestGrowthStock) – Stronger than expected consumer spending, a rise in inventories and a rebound in business investment helped France’s economic growth top forecasts in the second quarter despite weaker trade, data showed on Friday.

National statistics office INSEE said the euro zone’s second largest economy expanded by a preliminary 0.6 percent in the second quarter versus the previous three-month period, marginally higher than the consensus forecast of a Reuters poll for 0.5 percent growth.

INSEE also revised first-quarter growth upwards to 0.2 percent, from 0.1 percent.

France’s economy, which returned to growth in the second-quarter of 2009, appeared comfortably on track to meet a government target of 1.4 percent this year.

Coming hot on the heels of a 2.2 percent increase in Germany’s second-quarter GDP, its strongest since unification, the figure boosted hopes for stronger than expected euro zone GDP, which was forecast at 0.7 percent, analysts said.

“This is a very positive piece of news. It is very, very interesting to see that against widespread market expectations, French domestic demand showed strength in Q2,” said Natacha Valla, European economist with Goldman Sachs.

“Today’s release gives ground for optimism … both the resilience of consumer demand and the earlier than expected revival of private sector investment point to a healthy basis for domestic demand.”

French consumer spending, which accounts for roughly 60 percent of France’s 1.9 trillion euro economy, rose by 0.4 percent quarter-on-quarter, recovering after being flat in the first quarter and defying expectations for a decline.

Economy Minister Christine Lagarde said the figures did not alter the fact that France had to remain “extremely disciplined” on spending.

The government has pledged to freeze much public spending over the coming three years as part of its plans to slash the government deficit from 8 percent of GDP this year to 3 percent by 2013. It has also launched a reform of its indebted pensions system, designed to balance it by 2018.

RETURN TO INVESTMENT

Investment rose after eight straight quarters of decline. Business investment increased by 1.1 percent and public sector investment turned positive with 0.8 percent growth after a 1.5 percent contraction the previous quarter.

An increase in inventories, one of the most volatile components of GDP, contributed 0.6 percentage points to second-quarter GDP, INSEE said. However, domestic demand remained positive even without the increase.

Net trade contributed a negative 0.4 points to GDP, reversing its first quarter showing due to an increase in energy imports and a drop in car exports after scrappage schemes wound down.

Figures from INSEE on Friday also showed inflation rising by a higher than expected 1.9 percent year-on-year in July, which could signal an erosion of real incomes as the government and businesses hold salaries in check.

Non-farm payrolls, meanwhile, rose by 0.2 percent in the second-quarter, versus the previous three month period, but remained down 0.2 percent on the year, suggesting France’s labor market remains fragile.

(Additional reporting by Veronique Tison and Noah Barkin, editing by Mike Peacock)

Surprisingly strong consumption lifts French GDP