French economy gathers speed with boost from Paris Olympics
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FRANCE’S economy gained momentum as a boost from the Paris Olympics papered over underlying weaknesses that are weighing on the country’s public finances.
Third-quarter gross domestic product rose 0.4 per cent from the previous three months, statistics agency Insee said on Wednesday (Oct 30). That’s faster than the 0.2 per cent notched in the second quarter and also ahead of the 0.3 per cent economists had expected.
Household consumption and public spending were the main drivers for the boost. The figures are the first from a major eurozone economy.
France’s improvement offers some relief for the government, which is facing swollen budget deficits that are undermining investor confidence. With borrowing costs rising relative to European peers, Prime Minister Michel Barnier is trying to push unpopular spending cuts and tax increases through a parliament where he lacks a majority.
Lawmakers are set to resume a debate on the 2025 budget next week, with more than 1,500 amendments relating to the revenue part of the bill still unaddressed. The government said on Sunday it plans to crack down on absenteeism in the civil service and reduce development aid as it searches for savings.
While firmer economic expansion this year is a boon for President Emmanuel Macron, drilling down into the data shows investment dropped 0.8 per cent in the period. Separate figures showed growth in consumer spending slowed in September. Persistent weakness in those areas is a key factor behind plunging tax receipts that are further stretching public finances.
The wider consequences of that pressure are becoming evident. Consumer confidence unexpectedly dipped for the first time since April this month, with households gloomier on future living standards and unemployment becoming a bigger concern.
The outlook for the coming months is uncertain after business confidence slumped and with next year’s planned budget cuts set to weigh. The OFCE think tank has predicted that the fiscal adjustment may shave as much as 0.8 percentage point off 2025 growth.
Credit-rating firms are also sceptical about France’s prospects. Already this month Fitch and Moody’s Ratings have assigned negative outlooks to their assessments of the country’s sovereign debt. Scope, meanwhile, has downgraded France’s rating to AA- from AA. BLOOMBERG
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