French GDP edges up in Q1 despite strikes and high inflation

THE French economy grew slightly in the first quarter, despite a series of strikes against the government’s pension reform bill, but inflation remained stubbornly high, rising to nearly 6 per cent in April.

Statistics agency INSEE data showed gross domestic product (GDP) edging up 0.2 per cent in Q1, in line with expectations, after a flat fourth quarter, helped by household consumption, which was steady after falling 1 per cent in the last three months of 2022.

Inflation in the eurozone’s second-largest economy increased more than expected to 5.9 per cent year on year in April, from 5.7 per cent in March, which INSEE blamed partly on higher energy prices, as the year-on-year fall in energy prices was smaller than in March.

Prices for services and tobacco also increased, but food prices fell. Month on month, inflation eased to 0.6 per cent in April from 0.9 per cent in March, in part due to lower prices for fresh food.

French 10-year bond yields rose three basis points to 3.063 per cent following the release of the inflation data.

“April figures highlight that the fight against inflation is far from over, while the negative impact of higher interest rates is likely to intensify as the year progresses,” S&P economics director Diego Iscaro said in a note.

French Budget Minister Gabriel Attal said the economy was doing relatively well, adding that this was an opportunity to reduce state deficits swollen by unprecedented government action to protect consumers from the impact of the Covid-19 pandemic and inflation in recent years.

“The time for ‘whatever the cost’ is over now ... we need to be rigorous with public finances,” he told franceinfo radio.

He said the budget deficit had come down from 9 per cent in 2020 and 6.5 per cent in 2021 to 4.7 per cent last year, and that the government remained on track to cut it further to 2.7 per cent in 2027.

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But he warned about higher debt servicing costs – France now borrows at about 3 per cent, from 1 per cent a year ago – saying that by 2027 the cost of servicing the country’s debt could be France’s biggest budget spending item.

GDP data showed that French food consumption fell for the fifth consecutive quarter, but energy demand rebounded and stronger trade figures also helped.

Overall output of goods and services was up 0.4 per cent in Q1, having risen just 0.1 per cent in Q4 2022.

The refining industry rebounded, with output jumping 13.1 per cent after falling 11.4 per cent in the previous quarter, as strikes in March had been less widespread than in October.

Services again improved slightly, up 0.2 per cent from plus 0.1 per cent in Q4, driven by a strong restaurant and hotel industry, whose output grew 1.5 per cent after expanding just 0.2 per cent in Q4.

French central bank chief Francois Villeroy de Galhau said last month France’s full-year 2023 GDP would grow by “a little more” than the 0.3 per cent the bank had forecast in December.

Earlier this week, Germany raised its 2023 GDP forecast to 0.4 per cent from 0.2 per cent. Spain said on Friday (Apr 28) that Q1 GDP grew 3.8 per cent on an annual basis. REUTERS