French economic activity was supported by a strong increase in business investment during the fourth quarter of 2015, which helped to counterbalance the first contraction in private consumption for seven quarters.
IHS perspective | |
Significance | The French economy grew by 0.2% quarter on quarter (q/q) during the fourth quarter of 2015. Growth for the full year 2015 averaged 1.1%, the strongest rate in four years. |
Implications | Domestic demand was the main engine of growth during the fourth quarter, as investment grew strongly. On the other hand, net foreign trade was a drag on growth as a result of rising imports. |
Outlook | IHS expects activity to pick up some momentum during the first quarter of 2016. However, the recovery is likely to remain modest and gradual this year. |
Figures released by the National Institute of Statistics and Economic Studies (Institut National de la Statistique et des Études Économiques: INSEE) show French GDP growing by 0.2% quarter on quarter (q/q) during the final three months of 2015, down from an unrevised increase of 0.3% q/q during the third quarter. On a year-on-year (y/y) basis, the economy grew by 1.3% during the fourth quarter, the strongest annual increase in activity in four years. The French economy grew by 1.1% in 2015 as a whole, the fastest growth rate since 2011.
Inventory changes were the main driver of quarterly growth for the second successive quarter. These added 0.5 percentage point to the total change in demand during the fourth quarter, slightly below a contribution of 0.6 percentage point during the previous quarter. Domestic demand contributed just 0.1 percentage point as a result of falling private consumption levels. On the other hand, rising imports meant that net foreign trade was a drag on growth for the second quarter in a row.
Private consumption fell, on a quarterly basis, for the first time in seven quarters during the final three month of 2015. The terrorist attacks in Paris in mid-November 2015 are likely to have dampened consumption of services, while unseasonably mild weather led to a sharp fall in the consumption of energy. Consumption of goods, which account for around one-third of total consumption, declined by 0.8% q/q during the fourth quarter, despite a rebound in December. However, falling consumption was more than counterbalanced by a marked increase in investment spending. Investment grew at the strongest pace in five years, boosted by a 1.3% q/q increase in business investment. Household and government investment also increased, by 0.1% q/q and 0.4% q/q, respectively. Meanwhile, the contribution of net foreign trade to the economy was dampened by a marked rise in imports. Exports also grew during the fourth quarter, although at a weaker pace.
French real GDP, Q4 2015 (% change) | ||||||
Q/Q, SA | Y/Y | |||||
Q4 2015 | Q3 2015 | Q2 2015 | 2013 | 2014 | 2015 | |
GDP, total | 0.2 | 0.3 | 0.0 | 0.7 | 0.2 | 1.1 |
Domestic demand | 0.1 | 0.3 | 0.1 | 0.6 | 0.5 | 1.1 |
-Private consumption | -0.3 | 0.4 | 0.0 | 0.5 | 0.7 | 1.4 |
-Public consumption | 0.4 | 0.4 | 0.3 | 1.7 | 1.5 | 1.5 |
-Gross fixed investment | 0.8 | 0.1 | -0.1 | -0.4 | -1.2 | -0.1 |
Exports | 0.6 | -0.6 | 2.0 | 1.8 | 2.4 | 5.9 |
Imports | 1.6 | 1.5 | 0.7 | 1.8 | 3.9 | 6.1 |
Note: Seasonally adjusted data | ||||||
Inflation remains extremely low in January
Provisional figures also released by the INSEE show France's consumer price index (CPI; on the national definition) rising by 0.2% year on year (y/y) in January 2016. This is unchanged from December 2015, which had been the strongest rate of inflation in five months. This is the first time the INSEE has released a provisional CPI figure. The full set of figures is expected to be published on 18 February. From January onwards, the CPI is now published with 2015 as the base year.
Outlook and implications
IHS expects activity to accelerate during the first quarter of 2016. We estimate that the negative effects from the November 2015 terrorist attacks in Paris will dissipate during the first quarter. Moreover, unseasonably mild weather, which affected energy consumption and retail sales during the fourth quarter of 2015, is unlikely to play a part during the first three months of this year. However, we also see inventories making a negative contribution to the economy following two quarters of strong positive contributions.
Excluding temporary factors, the outlook is for a gradual and modest recovery during the rest of 2016. Domestic demand should be supported by muted inflation, easing credit conditions, and modestly improving confidence. On top of keeping inflation low, supporting households' purchasing power, lower international commodity prices will also help firms to restore their profit margins. Assuming that business confidence continues to improve over the coming months, this is also likely to be reflected in rising investment spending. Exports are also seen growing this year as a result of a slight pick-up in demand from key trade partners in the Eurozone. We do not expect the weak euro to have a significant boosting effect on exports this year given that many other currencies, particularly in emerging markets, have also lost significant ground against the US dollar.
However, the recovery still faces many headwinds. In particular, the labour market situation will remain difficult and unemployment will remain high, although we expect some stabilisation in 2016. Growth will not be strong enough to make a significant dent in France's elevated unemployment rate despite the measures implemented by the government earlier this year aimed at boosting employment. Job creation will also be limited by structural factors, such as elevated non-wage labour costs and employment protection legislation.