Today’s weak French GDP report is a blow to Emmanuel Macron, says Bloomberg:
Gross domestic product in the region’s second-largest economy fell 0.1% in the fourth quarter amid a decline in exports and a huge drag from inventories. All of the economists surveyed by Bloomberg had predicted growth. Without the inventory effect, growth would have been about 0.3%, according to Bloomberg Economics.
Still, the contraction is a sting for Macron, who’s already facing mass protests and strikes against his pension reforms, and which have disrupted household spending. His government has repeatedly pointed to France’s relative strength in Europe as a sign his reforms of taxes and labor laws are working.
European economists are disappointed to see that France’s economy has contracted.
UBS’s Filip Lipev says the GDP data is worst than expected, due to weak domestic demand….and a bad start to the day.
Ludovic Subran, chief economist at Allianz, blames the anti-government strikes that have gripped Paris for many months:
Introduction: France is shrinking
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
France’s economy has suffered a shock contraction, raising fresh concerns about the heart of the Eurozone — on the day Britain leaves the EU.
French GDP contracted by 0.1% in the fourth quarter of 2019, new figures from statistics body INSEE show. That’s down from 0.3% growth in July-September, and much worse than the 0.2% forecast.
The decline was driven by a slowdown in consumer spending, and a sharp drop in business investment growth.. Companies also ran down their inventory stocks, suggesting nervousness about the future.
Imports and exports both declined — a worrying sign for the health of the economy.
President Macron will surely be concerned — this is the first time France’s economy has contacted since he took office.
Household consumption expenditures slowed down slightly (+0.2% after +0.4%), and total gross fixed capital formation decelerated in a more pronounced manner (GFCF: +0.3% after +1.3%). Overall, final domestic demand excluding inventory changes slowed down compared with the previous quarter: it contributed to +0.3 points to GDP growth, after +0.7 points.
Imports fell back this quarter (–0.2% after +0.6%) as well as exports (–0.2% after –0.3%). All in all, the contribution of foreign trade balance to GDP growth was zero, after a negative contribution (–0.3 points) in the previous quarter. Changes in inventories contributed negatively to GDP growth (–0.4 points after –0.1 points).
France is the first major European country to post GDP figures for the last quarter, so this is a worrying sign – especially as Germany only narrowly avoided recession last year.
It means France’s economy only grew by 1.2% in 2019, down from 1.7% in 2018.
We’ll find out later this morning how Italy fared, and then how the overall eurozone performed during the last quarter.
Reaction to follow….
- 9am GMT: First estimate of Italian GDP for Q4 2019
- 9.30am GMT: UK mortgage approvals figures for December
- 10am GMT: First estimate of Eurozone GDP for Q4 2019