French growth fails to accelerate in the first quarter despite measures on purchasing power

French GDP growth decelerated slightly in the first quarter of 2019 even though the rounded figure stands at 0.3% (non-annualized) as in the previous two quarters. Despite the stimulus measures announced at the end of 2018, growth has not been boosted by the increase in households purchasing power.
Achieving the government target at 1.4% for 2019 on average would require growth of 0.43% in each of the remaining three quarters. It’s ambitious.

The annual change in activity is 1.1% in the first quarter, well below the trend observed since the 2013 recovery at 1.4%.
After the acceleration of 2017, resulting from the very buoyant global environment, the growth of the French economy can not deviate from the figure of its potential growth estimated generally between 1.2 and 1.3%.
For the moment, the measures implemented by the government are not able to go beyond this and this is worrying in a context where the sharp rise in the price of gasoline is a threat to the purchasing power that would penalize consumers’ demand.

Contributions to quarterly GDP growth are easy to remember. Domestic demand contributed 0.3%, inventories increased GDP by 0.3%, while net exports slowed growth with a contribution of -0.3%.

The important point is the slight acceleration of household consumption whose contribution goes from 0 in Q4 2018 to 0.2% in the first quarter. This is barely above the average observed since the recovery (0.15%) while government measures explicitly targeted consumption.
Government spending is growing at a slower pace, and this is the same for investment, whose contribution is decreasing marginally, notably because of the contraction of household investment. On the corporate side, the investment is a little stronger than in the last quarter of 2018 and that’s good news. However, this remains very limited (see the graph in appendix). This is insufficient to instil a solid dynamic into the cycle of the French economy.

The bad surprise comes from foreign trade whose pace is less robust than the monthly figures suggested until February. The contribution is frankly negative even if the contribution of imports is less negative than in Q4 2018. Exports stagnate and penalize growth. The French economy is also penalized by the world trade slowdown.

The accumulation of stocks has driven growth upward. Its pace in the second quarter will depend on the dynamics of demand. If this strengthens stocks will continue to fill. On the other hand, if the demand is lower, because the price of gasoline increases a little too fast, then companies could reduce these stocks which would penalize the profile of the activity.

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