Research Dept. News
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Monthly Report, num 305 - September 2007
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European Union - France
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France: major drop in second quarter
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Disappointing growth in France (mere 1.3%) in second quarter.
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France has not yet settled into a recovery path. GDP growth in the second quarter was a mere 1.3% year-on-year, substantially below that expected and the worst figure since the fourth quarter of 2005. This major slowdown, which follows 1.9% year-on-year growth in the first quarter, was mainly due to the notable drop in investment (which went from 5.0% year-on-year in the first quarter to 3.2% in the second) and the drop as a result of the accumulation of inventories, which took a half-point off the change in GDP. On the other hand, both private consumption and public consumption maintained a rate of increase of around 1.8% year-on-year, similar to that seen in the January-March period. In turn, the foreign sector reduced its negative contribution compared with the first quarter by half putting it at minus three decimals.
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Latest monthly indicators do not help to remove the unknowns about whether this disappointing stage in the cycle will soon end. On the demand side, the quantitative figures, such as household consumption and car sales, suggest that, between the second and third quarters, the drive in private consumption was maintained. On the other hand, consumer confidence indicators showed a tendency to worsen in June and July, which clouds prospects for any appreciable recovery of household consumption. On the supply side, on the other hand, the situation is different, given that the main indicator, industrial production, dropped sharply in June with a year-on-year decrease of 0.8% whereas sector confidence rose in both June and July.
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Third-quarter indicators scarcely remove doubts about economic trends in France.
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Interpretation of the trend in prices and unemployment is clearer. In both these areas the French economy is showing a positive trend. In inflation, we should point out that the CPI grew by a mere 1.1% year-on-year in July, slightly less than the 1.2% in June. Furthermore, other relevant prices, such as producer prices, also are tending to move down. With regard to the unemployment rate, in June this stood at 8.0% of the labour force, with a cumulative decrease of one percentage point in one year.
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