economic-research.bnpparibas.com Hélène Baudchon 1st February 2017 1
France: 2016 ends with strong growth
■ With Q4 growth of 0.4% q/q, the French economy ended 2016 on a positive note.
■ At 1.1%, average annual growth was virtually the same as in 2015 (1.2%). The lack of acceleration is due in part to a series of temporary factors that strained activity, especially exports.
■ This feeble performance nonetheless masks the 1.9-percentage point contribution of final domestic demand, which was lifted by an upturn in consumer spending as well as corporate and household investment.
■ This sheds a more favourable light on growth. This latter also benefits from a positive carry-over effect due to the strong Q4 2016 figure and from similar growth prospects in Q1 2017.
■ This increases the chances that annual average growth will accelerate slightly this year, to 1.3% according to our estimates.
In Q4 2016, the French economy grew at a quarterly rate of
0.4% (q/q) according to preliminary INSEE estimates. After a
mild 0.2% increase in Q3 GDP, growth rebounded as expected.
It fell slightly short of our estimates (0.5% q/q) but the pace of
growth is still twice as strong as the previous quarter. For the full
year, the economy grew at an average annual rate of 1.1%,
down slightly from the 1.2% reported in 2015 after adjusting for
seasonal fluctuations and working days (1.2% and 1.3%,
respectively, without adjusting for the number of working days).
Robust growth in Q4 2016
Looking at the GDP breakdown, French Q4 growth was robust.
Final domestic demand and net exports made positive
contributions of 0.6 points and 0.1 points, respectively. As
expected, the change in inventory made a negative
contribution of 0.2 points, which appears mild after a very
positive contribution in Q3 (0.7 points, see chart 1).
All of the components of final domestic demand contributed to
its strong contribution to growth. Household consumption
rebounded strongly, up 0.6% q/q, which is slightly higher than
the long-term average of 0.5% This rebound follows two
quarters in which household consumption barely budged
(+0.1% q/q each quarter). It was fuelled by a strong rebound in
household spending on goods (+0.9% q/q vs. -0.4%
previously) while the consumption of services held at roughly
the same pace (+0.3% q/q after +0.4%). This corresponds to
the average growth rate observed over the past four years. Yet
the Q4 rise in consumer spending on goods is not as strong as
the quarterly data show when we have a look at the
corresponding monthly changes: after increasing 0.8% m/m in
October and 0.6% in November, household spending on goods
suffered an unsurprising but nonetheless sharp correction in
December (-0.8% m/m).
Public expenditures continued to increase at a fairly rapid pace
(+0.4% q/q). Total investment increased 0.8% q/q, a significant
acceleration compared to the third quarter (0.3%), thanks to an
even stronger-than-expected rebound in corporate investment
(1.3% q/q after 0.1% q/q in Q3) and another expected
acceleration in household investment (+0.9% q/q after +0.7%
q/q). The only sour note was public investment, which
contracted 1.1% q/q1. In addition to the stronger-than-expected
upturn in corporate investment, exports were the other positive
1 Given the large revisions to this component of GDP in the recent past,
we do not tend to give much importance to any variations. Moreover, public investment accounts for only 3.4% of GDP.
■ Breakdown of French growth Contribution to growth of the components of GDP, q/q, percentage points
▌Household consumption ▌Public consumption ▌Corporate investment ▌Household investment ▌Change in inventory ▌Foreign trade ▬ GDP growth
Chart 1 Source: INSEE
0,6
0,0
0,4 0,2
0,6
-0,1
0,2
0,4
-0,9
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0,0
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T1 2015 T2 2015 T3 2015 T4 2015 T1 2016 T2 2016 T3 2016 T4 2016
DIRECTION DES ÉTUDES ÉCONOMIQUES
economic-research.bnpparibas.com Hélène Baudchon 1st February 2017 2
surprise of these preliminary Q4 growth estimates. Indeed,
exports accelerated even more vigorously than expected
(+1.1% q/q vs. +0.5% q/q the previous quarter) and surpassed
import growth (+0.8% q/q). As a result, net exports made a
slightly positive contribution to growth for good reasons.
In comparison, France’s Q4 2016 growth (+0.4% q/q;
annualised quarterly rate of +1.7%) was close to but slightly
lower than the Eurozone print (+0.5% q/q), which continues to
be driven by Spanish growth in particular (+0.7% q/q). France’s
performance is also not that far from US growth (+0.5% q/q;
+1.9% in annualised terms). The shortfall is slightly bigger
compared to UK growth, which continues to be surprisingly
buoyant (+0.6% q/q).
Full-year 2016 growth: less weak than at first glance
The French economy grew at an average annual rate of 1.1%
in 2016, which is significantly below the Eurozone result (1.7%)
and also below 2015 growth (1.2%). Granted, the differential
between the two years is insignificant, but the lack of an
acceleration is disappointing given the favourable combination
of low oil prices, interest rates and exchange rates.
The absence of an upturn can be attributed to several growth
shocks that left their mark during the year. Strong first-quarter
growth (+0.6% q/q) was followed by a sharp payback in the
second quarter (-0.1%) and then a mild rebound in the third
quarter (+0.2% q/q). The robust Q4 performance (+0.4% q/q)
was not strong enough to restore an even keel.
These fluctuations can be blamed on a series of temporary
factors2
. Early in the year, growth was bolstered by the
anticipated ending of the extra-depreciation measure (initially
scheduled to expire in April 2016, it was finally extended for
another year) and by early purchases of television sets prior to
the UEFA Euro 2016 championships and to the switchover to
the digital terrestrial television (TNT) standard. The
disappearance of these factors triggered an economic
backlash that was accentuated by labour unrest and the
blocking of refineries during several weeks in May and June.
The grain industry was also hit by unfavourable weather
conditions3
in the spring (which explains why agricultural
production plunged by nearly 6% in 2016) while the
aeronautics sector experienced supply problems and shipment
delays.
The troubles in these two sectors are partly to blame for
France’s poor export performance in 2016, with average
annual growth of only 0.9%, compared to 6% in 2015. This
2 No visible signs of the 14 July 2016 terrorist attack in Nice could be
seen in the national Q3 accounts, notably for spending on hotel & restaurant services and transport. Any negative effects were probably offset by a catching-up movement after the sharp decline in these spending categories reported in the second quarter. 3 Temperature variations in general also play a role in the volatility of
economic data, through their impact on household spending on energy. For instance, the energy bill rebounded strongly in first-quarter 2016 after contracting sharply the previous quarter due to unseasonably warm temperatures. The cold wave experienced in January 2017 is also expected to trigger a big increase in energy spending this month, which could push up growth for the whole Q1.
comes on top of a moderation in global demand for French
exports and the structural weakness of French
competitiveness. This poor export performance also explains
why net exports made such a negative contribution to growth
last year (-0.9 points), which is the main reason for the
sluggish pace of French GDP growth in 2016.
This weak overall performance masks the 1.9-point
contribution of final domestic demand, while the change in
inventory’s contribution was nil. Besides, final domestic
demand made a much bigger contribution to growth compared
to 2015 (1.3 points), thanks notably to the acceleration in
household consumption (to 1.8% from 1.5%), corporate
investment (to 4.3% from 2.7%) and household investment (to
1.5% from -0.8%, the first annual increase since 2011) over
the period. These trends shed a much more favourable light on
French growth in 2016.
2017: towards slightly stronger growth?
The mixed impression left by the weak 2016 growth figure
must be put into perspective given its specific composition and
strong performance at the last quarter of the year. Moreover,
growth has become more solid, if not more vigorous, thanks to
the turnaround in the job market, the construction sector and
corporate balance sheets. We have pushed back our hopes for
a slight upturn in growth until 2017, with average annual GDP
growth estimated at 1.3%4.
Growth expectations in 2017 also benefit from a positive carry-
over due to the strong Q4 2016 figure, and from the prospects
for similar growth in Q1 2017. The uptrend in business
confidence surveys supports this outlook. The improvement in
consumer confidence is encouraging for the same reasons
(see chart 2). The composite household confidence index rose
1 point to reach 100 in January, at last returning to its long-
term average for the first time since 2007. This improvement is
based on a more favourable households’ assessment of past
changes in living standards in France, of the unemployment
outlook and of their future personal financial situation.
4 See Ecoweek n°17-04, “France: could growth be stronger in 2017
than in 2016?” 27 January 2017.
■ Confidence surveys are picking up ▬ INSEE composite business climate index [LHS] ▬ Composite PMI [RHS] --- INSEE composite consumer confidence index [LHS]
Chart 2 Sources: INSEE, Markit
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economic-research.bnpparibas.com Hélène Baudchon 1st February 2017 3
Although the beginning of the year is looking rather upbeat, the
year 2017 has no shortage of obstacles. The biggest is the
current upturn in inflation in the wake of higher oil prices.
Although the inflation pick-up has been fairly gradual until now,
it suddenly surged according to January’s preliminary figures.
Headline inflation rose to 1.4% year-on-year in January,
compared to 0.6% in December (see chart 3). Core inflation is
still extremely mild, and the big surge in headline inflation can
be attributed in part to a negative base effect. Nonetheless, the
trend is there. Inflation is still not very high, but its acceleration
will cut into household purchasing power gains and curb
consumer spending, which in turn risks curtailing growth as a
whole.
Hélène Baudchon
■ Upsurge in inflation ▬ Headline inflation ▬ Core inflation
Chart 3 Source: INSEE
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1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
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