Economy

French economy grows more than expected in boost to euro zone

GDP in the currency bloc’s second-largest member rose 0.5 per cent in the second quarter

Shoppers at the Louis Vuitton store on the Champs Elysee in Paris. The French economy grew more than expected in the second quarter. Photograph: Cyril Marcilhacy/Bloomberg

William Horobin
Fri Jul 28 2023 - 07:37

France’s economy grew significantly faster than estimated in the second quarter, providing a positive surprise as recession fears swirl in the 20-nation euro area.

Boosted by a surge in exports, gross domestic product in the currency bloc’s second-largest member rose 0.5 per cent between April and June, having increased by 0.1 per cent in the first three months of the year, the Insee statistics agency said Friday. Economists surveyed by Bloomberg had estimated expansion of 0.1 per cent.

The figures offer some cheer after European Central Bank President Christine Lagarde on Thursday painted a worsening picture for the euro region in the coming months. Germany — the continent’s biggest economy — is already battling to exit a recession, while private-sector activity in the bloc as a whole points to a contraction in July.

In France, while exports were stoked by the delivery of a cruise ship, consumer spending fell 0.4 per cent and investment advanced by just 0.1 per cent

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“The near-term economic outlook for the euro area has deteriorated owing largely to weaker domestic demand,” Lagarde said after interest rates were lifted for the ninth time since last July. “Over time, falling inflation, rising incomes and improving supply conditions should support the recovery.”

The barrage of rate hikes, however, has boosted loan costs for French households and firms, while consumer-price growth remains well above the ECB’s 2 per cent target. Inflation data due later Friday are expected to show a small slowdown in France in July, to 5.1 per cent. The 20-nation euro region will publish its reading, alongside GDP, on Monday.

As food inflation surges, French consumers have sought to cut costs, with sales of own-brand goods at Carrefour rising twice as fast as national brands.

“We are still in this inflationary environment with trading down, with pressure on volume, with accelerations on private label and all the new behaviors of the customer we have observed for one year,” chief executive Alexandre Bompard said on Wednesday in a presentation of Carrefour’s latest financial results.

A separate publication showed French consumer spending had begun to rebound by the end of the quarter, with a 0.9 per cent increase in June as food purchases partially recovered. --Bloomberg

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