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Big blow for French growth

Badaboum. After posting an identical 0.3% increase in the first three quarters of 2019, Gross Domestic Product fell 0.1% in the fourth quarter. This is the first time since the spring of 2016, when GDP, this key economic indicator corresponding to the sum of the wealth created by the country, had also declined. As a reminder, it takes two consecutive quarters of negative growth for a country to be considered in recession.

France, however, is no exception in Europe. With economic growth which slowed to 1.2% for the whole of 2019 (+ 1.7% in 2018), it is in tune with the euro zone according to preliminary data from the European Statistics Office Eurostat: 1 , 2% growth last year compared to 1.8% in 2018 and 2.4% in 2017. The European Commission, which for its part expected in November growth of 1.1% for 2019, must publish a new figure at mid-February.

Below forecast

In its latest economic outlook for France, INSEE anticipated 0.3% for the fourth quarter, as did the Banque de France and the government, which was betting on growth of 1.3% in 2019. Public statisticians counted on good export performance and well-oriented consumption. But the figure announced on Friday is also far below the consensus of economists, who expected a 0.2% increase in GDP.

This discrepancy is explained by the underperformance of the French economy in the last quarter. The production of goods and services suffered particularly over the period (-0.2% compared to the previous quarter), illustrating for example the blockages of refineries or the strike in transport. Companies therefore preferred to sell their stocks. Were the strikes against the pension reform right over the growth at the end of the year? For Julien Pouget, head of the economic service at INSEE, “The effect of the strikes is probably close to at least 0.1% but we will have to look more closely at what really happened because other factors may have played in December”.

Investment also slowed sharply to + 0.3% after + 1.6% in the fall, even if it rose over the year (+ 3.6% after + 2.8% in 2018 ). A slowdown which also affects, to a lesser extent, household consumption, a drop no doubt linked to the social movement: + 0.2% in the fourth quarter after + 0.4% in the third. But there too, “On average over the year, notes INSEE, household consumption accelerates slightly “ at + 1.2%, after + 0.9% in 2018.

Gloomy global economy

As for foreign trade, it had no effect on activity in the fourth quarter alone, neither in positive nor in negative. But over the year as a whole, it will have penalized growth, with a sharp increase in imports (+ 2.3%, after + 1.2% in 2018) and a slowdown in exports (+ 1.8% after + 3.5% in 2018). This trend can be explained in particular by the gloomy global economy, marked last year by rising trade tensions between China and the United States.

This temporary decline in GDP does little to do with the government, which in recent days has welcomed the fall in unemployment and the increase in foreign investment in France last year. The growth acquis (ie the level that GDP would reach if activity stagnated by December 31) is only 0.16%. This means that to reach the 1.3% growth on which the executive has built its budget for 2020, GDP would have to increase by 0.45% each quarter. Or a level well above the rate of growth in recent years. “It seems excessive, responds in a note Philippe Waechter, chief economist at Ostrum Asset Management. This would be more than double the growth seen in 2019, or 0.21% on average per quarter ”, he warns.

A temporary slowdown according to Bercy

However, Bruno Le Maire, who said a few days ago that strikes would have only a minimal impact on growth – while worrying about strong effects on trade – wants to put this incursion of GDP into territory negative. It’s a “Passenger slowdown, which therefore does not call into question the fundamentals of French growth which are solid ”, he said. And to insist: “Household consumption and business investment are resisting.” While INSEE anticipated in December a small decline in growth in the first quarter (+ 0.2%) before rising to + 0.3% in the spring to arrive at an increase of 0.9% in mid-2020 , other factors could now tarnish the situation. After the strikes, will the economic fallout from the Chinese coronavirus in turn shake up government forecasts?

Christophe Alix

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