French Growth Figures Boost Macron After Setbacks -- 2nd Update

The French economy maintained firm growth in the second quarter, statistics showed Friday, giving President Emmanuel Macron a shot in the arm as he embarks on contentious plans to rewrite labor laws and cut public spending.

Gross domestic product rose by 0.5% in the second quarter from the first, keeping up with the above-average pace the French economy set in the previous two quarters, statistics agency Insee said. The figures were in line with economists' expectations.

Firming growth should help Mr. Macron as he attempts to address France's gaping deficits and high unemployment, which have left its economy trailing Germany's and other European peers.

The 39-year-old president has prescribed deep spending cuts to close the deficit and a loosening of labor laws to encourage businesses to hire. Stronger growth could help smooth the possible disruption to the job market from the changes and support incomes and employment as the state tightens its belt.

"It's not the worst moment for these policies because we are in a positive phase in the economic cycle," said Xavier Timbeau, an economist at publicly funded economic observatory OFCE.

Friday's GDP figures--the first covering a period of Mr. Macron's presidency--showed a strong rise in exports after a contraction in the first three months of the year. Consumer spending picked up, rising 0.3% on the quarter, after 0.1% growth in the first three months of 2017.

Business investment continued to grow, although at a slower rate than the start of the year, when companies rushed to make use of expiring tax incentives.

The strength of the underlying economy is a relief for the government after Mr. Macron's economic plans recently ran into obstacles.

In June, a report by the state auditor revealed a wider-than-expected deficit, pushing the government to make additional spending cuts. The cuts sparked a public row with the army that ended with the resignation of France's top military commander.

Mr. Macron's approval ratings have dropped since he came to power, reaching 54%, according to a survey last week by Ifop, down from 64% in June.

Still, consumer and business surveys have improved to multiyear highs since Mr. Macron's election, raising hopes for a stronger economic rebound. France is also benefiting from the European Central Bank's record low interest rates and vast asset-purchase program, which the Bank of France says has boosted growth and jobs.

Business leaders say Mr. Macron must now deliver on labor overhauls to sustain the economic uptick and bring down the 9.6% unemployment rate.

Schneider Electric's chief executive Jean-Pascal Tricoire said his company had a relatively flat first half in its home market, as it was waiting for renewed confidence after Mr. Macron's election in May to translate into sales. Only a fraction of the electrical equipment maker's business is in France, but it is exposed to a broad cross section of industrial clients.

"France is doing better in terms of morale after the election; now reforms need to happen to generate investment and business development," Mr. Tricoire said.

Mr. Macron's government is currently consulting with labor and business unions to prepare decrees that would make sweeping changes to labor laws as part of a fast-track parliamentary procedure. The government aims to give businesses greater latitude to work around rules set by unions and encourage hiring by limiting the costs and legal uncertainties of laying off staff

Some businesses are concerned Mr. Macron will bow to resistance from labor unions and water down the plans. François Asselin, the head of business lobby CPME that is negotiating with the government on behalf of small companies, said that even as the economy picks up pace, many of the executives he represents might still avoid hiring.

"If the government really reforms the labor code in a courageous, significant way, there will be a positive impact," Mr. Asselin said.

The pickup in French growth has aided the eurozone's economic recovery in the first half of 2017. The currency area's growth has surprised this year, as it outpaced the U.S. in the first quarter and may have accelerated further in the three months to June. Growth figures for the second quarter will be released Aug. 1.

Data from Spain also released Friday showed the economy grew at 0.9% on the quarter in the three months through June. This is a pickup from the first three months of the year that puts the eurozone's fourth-largest economy on track for growth of more than 3.1% in 2017.

The currency area's faster recovery appears set to continue in coming months, with a measure of business and consumer confidence for July released Friday rising to its highest level since August 2007.

As 2017 began, many economists expected eurozone growth to slow in response to high levels of political uncertainty ahead of elections in France, the Netherlands and Germany and a fall in exports to the U.K. as a consequence of the pound's depreciation after the June 2016 Brexit vote.

Ireland was expected to be one of the eurozone economies to suffer most, given its close ties to Britain. But the country's central bank raised its growth forecast for 2017 to 4.5% from 3.5% on Friday, and for 2018 to 3.6% from 3.2%.

"Revised projections for growth this year and in 2018 reflect both stronger momentum in the domestic economy and improved prospects for external demand, especially from our European trading partners," Gabriel Fagan, the central bank's chief economist, said.

Paul Hannon in London and Jeannette Neumann in Madrid contributed to this article.

Write to William Horobin at

(END) Dow Jones Newswires

July 28, 2017 09:54 ET (13:54 GMT)