A much-expected rebound of France’s COVID-battered economy failed to materialise in the first quarter as key sectors remained sluggish after over a year of virus restrictions, official data showed on Friday.
Gross domestic product contracted by 0.1 per cent in the first three months of the year, the Insee statistics agency said, in a sharp reversal of its previous estimate of 0.4 per cent growth.
French authorities began ordering business closures and travel bans in several regions in March – the tail end of the quarter – ahead of a third round of coronavirus restrictions implemented in April to curb rising COVID cases. France has since entered a phased reopening of the country.
The crucial construction sector, in particular, was slow to ramp up activity after a devastating year for the French economy which declined by more than eight per cent in 2020. The sector was “substantially less dynamic” than expected, Insee said. Investment, household spending and production also fell short.
‘Keep cool’
The French government was nevertheless quick to confirm its five per cent GDP growth objective for the full year 2021.
The French government was nevertheless quick to confirm its 5% GDP growth objective for the full year 2021
“This doesn’t change our target in any way,” Finance Minister Bruno Le Maire told reporters, calling the first quarter slowdown “an automatic revision” linked to 2020 growth that he said had held up better than thought. Calling on the country to “keep cool and not be disheartened by this or that number”, Le Maire said that current indicators “are all pointing upwards”.
Diego Iscaro, senior European economist at IHS Markit agreed, saying the weaker figures “do not change the big picture”. While the gradual reopening of the economy should lead to a “strong rebound in activity”, he also told AFP that any worsening of the pandemic could lead to tighter restrictions again.
A better vaccine rollout of vaccines had, however, diminished the likelihood of such a scenario.
Meanwhile, early indications for France’s April performance, published separately by Insee, showed that the economy remains under pressure. Consumer spending declined 8.3 per cent in April from March, with spending on manufactured goods alone tumbling nearly 19 per cent, a fall Insee blamed on “the third lockdown”. Spending on food slipped just 0.2 per cent in April.
But even as the economy remains soft, inflation has picked up with consumer prices rising by 1.4 per cent year-on-year in May, according to an early estimate, after 1.2 per cent in April, Insee also said.
A surge in the cost of energy – up 11.8 per cent – was the main factor for accelerating prices, it said, with a reopening of most shops last week also playing a role, even as food prices remained sluggish. Sharply falling petrol purchases amid transport restrictions were outweighed by more spending on heating during a cold snap early in the month, Insee said.
‘Consumption boom’
Global oil and gas prices are currently hovering around six-year highs under the twin impact of OPEC production cuts and slow production increases of non-OPEC producers, notably the US, analysts say.
Many expect persistently high energy prices and unprecedented debt-fuelled spending by many governments aimed at countering the economic effects of COVID to raise inflationary pressures as world growth gathers pace.
Le Maire said that he stood by his forecast that “the first quarter of 2022 will mark a return to the level of economic development that we had in 2019, before the crisis”.
The Paris stock exchange’s CAC-40 blue chip index brushed off the growth dip, showing a modest increase, as analysts detected growing eurozone-wide optimism.
Oxford Economics, a forecasting firm, said on Friday that “a consumption boom is likely from June and in the summer” after it detected a sharp rise in business and consumer confidence in its May survey.