Domestic demand continues to boost French growth
Advance estimates show that French GDP rose by 0.3% quarter on quarter (q-o-q) in Q3, the same pace as in the two previous quarters. France has proven to be more resilient to the loss of economic momentum than other big euro area economies such as Germany. Several factors explain French resilience. One of them is the relative importance of domestic-oriented sectors, like services and construction, compared with industry. In France, the weight of industry (excluding construction) as a percentage of total value added is lower than in either Italy or Germany. Thus, the country has suffered less from the decline in global trade.
Households consumption contributed positively to Q3 growth (+0.3% after +0.2% in Q2) thanks to the sizeable purchasing power gains resulting from the combination of lower headline inflation, decent job creation, wage growth and tax cuts. However, it is worth mentioning that a good share of extra purchasing power has gone into a rise in the household savings rate. Of note was the solid business investment, which rose at a robust pace in Q3 (+1.2% q-o-q after 1.1%).
We remain cautiously optimistic on France. Domestic fundamentals remain well anchored in our view and should continue to support growth. The French government’s draft 2020 budget contains further measures to boost purchasing power and should support consumption somewhat. Measures will be funded through cuts in public expenditure and reduced tax and social security contribution breaks for corporates. Our GDP growth forecasts for France remain unchanged at 1.3% in 2019 and 1.2% in 2020.