France: Weak GDP growth numbers for 1Q18 - ING

France’s first quarter GDP figures posted some unpleasant surprises in terms of French domestic demand dynamism as GDP growth was a weak 0.3% QoQ in 1Q18, explains Julien Manceaux, Senior Economist at ING.

Key Quotes

“First, private consumption came out below expectations, at a mere 0.2%, showing no sign of improvement for the last two years. Private consumption grew by only 1.3% in 2017. With such a weak start to the year, it is difficult to see 2018 consumption growth above 1.5%.”

“Non-financial companies’ investments slowed down to 0.5% QoQ, its lowest speed since the end of 2016, while household investments remain supported by low-interest rates and a stronger housing market. Another surprise came from public investments which grew by 0.9% QoQ, their strongest since 2011. This is only the second positive contribution to growth of public investments in the last 20 quarters.”

“On the external front, it seems that a stronger euro was already working against French exporters in the first quarter as exports declined by 0.1QoQ. Weak imports, due to a weaker domestic demand, allowed the contribution to stay in non-negative territory. However, this could change if private consumption revives somewhat in coming quarters.”

“All in all, we still think that French GDP growth can reach 2.1% in 2018 as further euro strengthening should take time and as unemployment is declining. While all the conditions are there for a consumption rebound, we will need a rebound in business confidence to see a further acceleration of investments. The return of trade war rhetoric is not helping, and on the internal front, there is no doubt that the highly symbolic social conflict in the national railways could give a strong signal about the government’s ability to reform.”