French economy shrinks for first time in Macron's presidency

[PARIS] France's economy unexpectedly contracted for the first time in Emmanuel Macron's presidency, hinting at a deeper deterioration in the euro area at the end of 2019.

Gross domestic product in the region's second-largest economy fell 0.1 per cent in the fourth quarter amid a decline in exports and a huge drag from inventories. All of the economists surveyed by Bloomberg had predicted growth. Without the inventory effect, growth would have been about 0.3 per cent, according to Bloomberg Economics.

The euro remained lower after the report and traded at US$1.102 at 7.57am Paris time, down 0.1 per cent.

Still, the contraction is a sting for Mr Macron, who's already facing mass protests and strikes against his pension reforms, and which have disrupted household spending. His government has repeatedly pointed to France's relative strength in Europe as a sign his reforms of taxes and labour laws are working.

Finance Minister Bruno Le Maire blamed the poor results on disruptions in ports, the rail network and fuel deposits and highlighted resilient consumption and business investment.

"This temporary slowdown does not call into question the fundamentals of French growth, which are solid," he told reporters in a statement. "We are nonetheless particularly vigilant of international uncertainties."

France's performance takes away from the more upbeat mood emerging about Europe recently. Surveys have suggested that the rot has been stemmed for now, and growth in the region could improve in 2020.

The European Central Bank has already been striking a more positive tone, highlighting that risks to the outlook have become "less pronounced".

More signs of improving momentum came Thursday when the European Commission reported a marked rise in sentiment in January, led by manufacturing and construction.

There's still plenty that could test the European economy's resilience.

Trade risks have returned to the fore with the US renewing threats last week to raise duties on imports of cars from the EU, and France only narrowly avoiding American tariffs on wine and cheese in a dispute over digital taxation. New risks are also emerging, notably including how much the spread of the deadly coronavirus drags on the Chinese and global economies.

French cognac maker Remy Cointreau has already sounded a note of caution over the impact of the virus on its business in China. The company ditched its guidance for the year.

At home, French companies are also facing headwinds from prolonged transport strikes. Retailer Casino Guichard Perrachon SA pointed to the disruption as a reason for cutting its profit forecast earlier in January, and the tourism sector is also expected to suffer.

GDP figures for the whole of the euro area will be published later Friday. Economists expect growth to have slowed to 0.2 per cent in the fourth quarter.

In the US, the economy grew at a 2.1 per cent annualised pace in the fourth quarter, matching the previous period, though consumer spending growth weakened and business investment declined.

Figures from Spain - also due Friday - are expected to show growth steady at 0.4 per cent in the fourth quarter. There's been encouraging numbers from some of the euro area's smaller economies already.

Belgium's economy grew 0.4 per cent in the period, while expansion in Austria accelerated to 0.3 per cent from 0.1 per cent.

BLOOMBERG