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French economy grows in stop-start expansion that lags peers

Friday, October 28, 2016 - 14:44

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The sluggish performance is adding pressure on President Francois Hollande, who has promised to say by mid December whether he will seek a second mandate in an election that is less than six months away.

[PARIS] The French output grew less than expected the third quarter as part of a start-stop expansion that leaves Europe's second-largest economy lagging its neighbors.

Gross domestic product expanded 0.2 per cent in the three months through September after shrinking 0.1 per cent in the previous period, national statistics office Insee said Friday. That compares with a 0.3 per cent increase predicted by economists in a Bloomberg survey.

The sluggish performance is adding pressure on President Francois Hollande, who has promised to say by mid December whether he will seek a second mandate in an election that is less than six months away. Finance Minister Michel Sapin admitted the third-quarter figures will make it difficult for the government to achieve its full-year growth target of 1.5 per cent, though he rejected suggestions that the Socialist Party seek an alternative presidential candidate.

"The growth is there," Mr Sapin said on RTL radio. "Francois Hollande is the person best placed to unite the left." With full-year growth set to come in at about 1.3 per cent, according to a separate survey, France will be matching a 2015 performance that was the best in four years. Yet that less than half the pace of the expansion expected in Spain and below the 1.8 per cent expected for both Germany and the UK.

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"The big picture is that there is some modest re-convergence between the laggards like France and Italy and the stellar performers such as Spain," said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva. "That's the trend beyond the noise and the volatility: both are re-converging towards their potential growth, which is fairly low for France in particular."

For a second straight quarter French consumer spending was unchanged and corporate investment declined. Inventory building contributed 0.6 per cent to growth in the period, while trade generated a 0.5 per cent drag on the expansion, Insee said.

In Spain, which reports third-quarter GDP at 9am local time, growth probably slowed to 0.7 per cent, according to economists surveyed by Bloomberg. Sustained consumer strength and export activity are helping maintain the pace of the recovery as the impact of past reforms and one-off stimulus such as lower oil prices fade.

The nation's unemployment rate fell to the lowest in more than six years in the period, although the bulk of the new jobs were short-term contracts.

The contrasting performance is keeping pressure on the European Central Bank to maintain unprecedented stimulus. Chief economist Peter Praet said Wednesday that although the euro-area recovery "is showing signs of resilience, material downside risks remain."

The Governing Council has a crucial meeting in December when it will have new forecasts and an internal report on its bond buying program.

The European Commission releases its estimate of confidence in the euro zone at 11am Paris time. Overall sentiment will probably be unchanged, while a gauge for business climate may show some improvement, according to another Bloomberg survey. Eurostat will publish third-quarter GDP figures for the 19-nation region on Monday.

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