France: Economy grows most since Q2 2023 in Q1
GDP growth improved to 0.2% on a seasonally adjusted quarter-on-quarter basis in the first quarter, up from 0.1% in the fourth quarter of last year. Q1’s reading marked the best result since Q2 2023. On an annual basis, economic growth ticked up to 1.1% in Q1, following the previous quarter’s 0.8% increase and the fastest increase since Q2 2023.
The upturn was driven by a broad-based improvement in domestic demand. Private consumption growth improved to 0.4% seasonally adjusted quarter-on-quarter in Q1 from a 0.2% expansion in Q4. Public consumption ticked up to a 0.6% increase in Q1 (Q4 2023: +0.5% s.a. qoq). Meanwhile, fixed investment rebounded, growing 0.3% in Q1, contrasting the 0.9% decrease in the previous quarter. Consequently, domestic demand excluding inventory changes contributed 0.4 percentage points to growth, after having no effect on growth in Q4. The improvement in domestic activity came on the back of declining price pressures throughout the period.
On the external front, exports of goods and services growth sped up to 0.5% seasonally adjusted quarter on quarter in the first quarter, which marked the best reading since Q2 2023 (Q4 2023: +0.4% s.a. qoq). That said, imports of goods and services rebounded, growing 0.2% in Q1 (Q4 2023: -2.3% s.a. qoq). As a result, net foreign trade did not make any contribution to growth in Q1, after adding 1.0 percentage points to Q4’s outturn.
Our panelists expect the French economy to continue expanding at a similar pace in the coming quarters. Survey data for Q2 suggests that the services sector is becoming the backbone of growth, while the manufacturing sector remains in the doldrums. Over 2024 as a whole, the Consensus is for GDP to expand at a slightly slower pace than in 2023, as prior monetary tightening dents investment activity. Higher-for-longer interest rates and political tensions are downside risks.
Analysts at the EIU commented on the outlook:
“Economic activity will be held back by tight monetary policy […] which will slow investment activity. The external environment will also remain relatively subdued, with global growth and demand for French exports slowing from Italy and the US, France’s second- and third-largest export markets. Nonetheless, industrial output should pick up, on the back of rising demand from Germany, France’s largest export market.”
Analysts at Fitch Solutions said:
“We anticipate that as real wage growth shifts back into positive territory in the upcoming months – after being negative since April 2021 – French households’ consumption will recover the ground lost over the forthcoming quarters. […] That said, France’s close economic ties to the struggling German economy will persist as a headwind over 2024.”