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Economy in Brief

French GDP Growth Is Trimmed Back
by Robert Brusca   December 28, 2010

Despite some slight downward GDP revisions, the chart shows that France's economic recovery is still in train, with both GDP and household consumption rising at an accelerating pace. The sense of acceleration is slowing, however. Yr/Yr GDP is up at a 1.7% pace compared to a 1.6% pace in Q2. Private consumption is still accelerating a bit better than that, rising at 1.8% pace after two quarters at 1.5% Yr/Yr.

The growth rates for GDP and for private consumption essentially have converged in France so that private consumption is not carrying the load of accelerating growth anymore. With that fact in the background though, it is still true that consumption speed and the pace of GDP growth both have picked up the pace. Yet import growth has accelerated, taking away some of the punch from improved consumption on GDP. Exports have improved too, blunting some of the impact of rising imports which otherwise would have degraded GDP growth by even more.

Still exports seem a false hope here. In 2010-Q1 export growth yr/yr surpassed import growth by seven percentage points; in Q3 that was down to 1.8 percentage points; in Q3 that difference is 2.4 percentage points but has turned in favor of imports. Trade trends are no longer a positive for France's GDP. But as we saw consumption is still eking out better gains to bolster GDP but with its negative side effects on trade.

Construction spending in France is still contracting on an uneven trend. Investment spending is on an improving trend but was set back in the quarter. Public consumption spending has diminished its yr/yr growth rate but has accelerated in two of the last three quarters. Meanwhile France is implementing an austerity program making the push to growth from the public sector less likely to endure.

With these revisions in GDP growth France is growing just a little slower - nothing dramatic or game-changing. Still, the GDP components do not give us a real sense of what will drive GDP ahead. Although consumption spending is steady-to-improving the shift to austerity could change that. Trade is no longer a clear engine of growth. Without an improved economic climate construction will not get better and investment is already a question mark, at least as to speed. France epitomizes the challenges in Europe under the German-led notion that austerity is the road to prosperity and not to serfdom. In 2011 this notion will get a stronger test.

French GDP
  Consumption Capital Formation    
  GDP Private Public G Fix Invst Construct Exports Imports
% Change Q/Q
Q3-10 1.2% 2.0% 1.4% -1.7% -2.4% 12.5% 18.3%
Q2-10 2.4% 1.1% 1.1% 10.5% -1.3% 12.1% 18.0%
Q1-10 0.8% 0.2% -0.2% 0.3% -9.2% 22.3% 8.1%
Q4-09 2.5% 3.9% 2.5% 21.3% -7.6% 4.1% 16.0%
% Change Yr/Yr
Q3-10 1.7% 1.8% 1.2% 7.2% -5.2% 12.6% 15.0%
Q2-10 1.6% 1.5% 1.6% 11.6% -6.8% 11.8% 10.0%
Q1-10 1.2% 1.5% 2.1% 9.6% -7.4% 9.0% 2.0%
Q4-09 -0.5% 1.6% 2.8% 0.2% -6.0% -5.3% -6.6%
5-Yrs 0.7% 1.5% 1.8% 2.8% -1.0% 0.9% 2.5%
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