France posts surprise GDP growth of 0.2 percent in Q3

By

Published November 15, 2012

| Reuters

France's economy unexpectedly grew 0.2 percent in the third quarter as households splashed out on clothing and trade data turned positive, but economists said high unemployment and rising taxes made for a gloomy outlook.

The preliminary data from the INSEE national statistics office confounded fears that France might slip into recession by year-end, although second-quarter output was revised down to show a 0.1 percent contraction instead of being flat.

The July-September figure was close to the top of the range of forecasts from 30 economists' polled by Reuters, who had predicted on average zero percent growth quarter-on-quarter.

But economists cautioned that with unemployment running at a 13-year high and 30 billion euros ($38 billion) in additional taxes on households and businesses set to kick in next year, the bounce was unlikely to be maintained.

"A positive figure for the third quarter does not mean the crisis is over," said Philippe Waechter of Natixis Asset Management. "Private demand - both consumption and capital investment - are still very low. There's no momentum."

Household spending rebounded as spending on clothing rose strongly in the quarter, while consumers also spent more on health and services, the data showed.

The unexpected growth may provide a boost to President Francois Hollande who has launched a drive to turn around France's flagging competitiveness and lower unemployment. The weak economy has been a key factor in driving down his approval ratings since he took office in May.

It could also provide a lift to growth figures for the euro zone as a whole, due out later on Thursday and expected to show the bloc's 9.4-trillion-euro ($11.96 trillion) economy entering recession for the first time since 2009.

Broken down by sector, household consumption, the engine of France's 2 trillion euro economy, grew by 0.3 percent in the third quarter after contracting 0.2 percent in the previous three months. Destocking by French firms, particularly in the transport sector, and falling investment were a drag on growth.

After two quarters of mild contraction, manufacturing output also crept up 0.1 percent, lifted by a rise in sales of transport materials and refining and coking.

Growth in exports accelerated to 0.5 percent from 0.3 percent in the second quarter. Crucially, volatile import demand declined 0.6 percent after strong growth of 1.6 percent in the second quarter.

GLOOMY OUTLOOK

The positive news comes ahead of a hefty auction of French debt on Thursday. France will sell between 6.5 and 7.5 billion euros of medium-term fixed rate bonds, along with 1.0 to 1.5 billion euros of index-linked bonds.

Economists had been watching France's economy closely amid rising concerns over its growth prospects. Weighed down by high unemployment and flagging competitiveness, France's 2-trillion euro economy had not posted positive growth since the third quarter of 2011.

Weak industrial production and business sentiment surveys suggest France's economy may end the year on a down note, economists say.

Weakness in France's main trading partners, notably in southern Europe, plus looming tax rises and rising unemployment also make for a gloomy outlook.

"We expect the French economy to contract again in the final quarter of this year," said Joost Beaumont of ABN Amro.

Hollande's government unveiled a plan last week to boost the competitiveness of French industry, including 20 billion euros a year in tax credits to lower labour costs. However, German government sources have expressed concern the measures do not go far enough. ($1 = 0.7856 euros)

(Reporting By Daniel Flynn; Editing by Catherine Bremer)

URL

http://www.foxbusiness.com/news/2012/11/15/france-posts-surprise-gdp-growth-02-percent-in-q3/