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The French economy stagnated at the end of last year, hit by falling domestic demand and leaving the overall eurozone struggling to escape a second consecutive dip in output in the fourth quarter.
Gross domestic product in the eurozone’s second-largest economy was flat in the three months to December, in line with economists’ forecasts in a Reuters poll. It follows a similar stagnation in the third quarter, which was revised up on Tuesday from an earlier estimate of a 0.1 per cent contraction by Insee, the French statistics agency.
The flatlining of the French economy came as weaker investment by businesses and households offset a rebound in foreign trade and government spending in the three months to December from the previous quarter.
Despite the weak performance in the second half of the year, French gross domestic product still grew 0.9 per cent last year.
The overall eurozone economy is expected to have contracted 0.1 per cent in the fourth quarter. GDP for the bloc will be announced later on Tuesday. Germany, the largest European economy, shrank 0.3 per cent in the period, according to an initial estimate released this month.
Insee said French investment fell 0.7 per cent in the fourth quarter, while household spending retreated 0.1 per cent. Changes to inventories knocked 1.1 per cent off gross domestic product. Production fell in construction, food and refineries, but goods and services grew slightly.
Government spending was up 0.3 per cent. Trade also made a positive contribution of 1.2 per cent to gross domestic product as imports fell much more than exports.
Economists expect the French economy to pick up this year as inflation slows and wages continue rising rapidly, boosting the spending power of consumers. Borrowing costs are also starting to fall in anticipation of the European Central Bank cutting interest rates this year.
“We expect growth across the region to pick up as households translate real income gains into consumption and the sharp fall in inflation allows the drag from monetary policy to recede,” Alexandre Stott, an economist at Goldman Sachs, wrote in a recent note to clients.
French consumer confidence rose in January to its highest level for almost two years, thanks to a perceived improvement in households’ financial situation and receding fears of unemployment, according to an Insee survey released last week.
However, many French businesses were still stuck in a rut at the start of this year, according to a survey of purchasing managers by S&P Global, which found activity had fallen at the fastest pace in almost four years in manufacturing and in four months in services.
“The survey data for January have been bleak, casting a cloud over our call for a recovery in GDP from this quarter, as falling inflation supports consumption,” said Melanie Debono, an economist at consultants Pantheon Macroeconomics, forecasting a slowdown in French growth to 0.6 per cent this year.
