France Narrowly Avoids Recession In Q2

(RTTNews) - The French economy narrowly avoided recession in the second quarter as hot summer weighed on agriculture production, making the government's full-year growth forecast difficult to achieve.

Flash data showed that consumer price inflation rose to a three-month high in August due to higher energy prices.

Gross domestic product remained flat in the second quarter but avoided a recession, revised data from the statistical office INSEE showed on Friday.

The second quarter GDP was revised down from the previously reported 0.2 percent growth. The economy shrank 0.2 percent in the first quarter, which was revised from the initially estimated 0.1 percent fall.

The expenditure-side of GDP showed that household spending rebounded 0.3 percent, while gross fixed capital formation fell 0.3 percent due to the further decline in GFCF in market services and in construction.

On the other hand, government spending grew at a faster pace of 0.4 percent, following a 0.3 percent gain. Overall, final domestic demand excluding inventories contributed 0.2 points to GDP growth.

Exports recovered strongly by posting 2.9 percent growth, particularly driven by shipment of aeronautics. Imports gained 1.1 percent, reversing a 0.6 percent fall. Overall, the contribution of foreign trade to GDP growth was 0.6 points compared to -0.9 points a quarter ago.

Finally, the contribution of inventory changes to GDP growth was negative 0.7 points. ING economist Charlotte de Montpellier observed that the economy came very close to a technical recession in the first half of the year. The government's revised GDP growth forecast of 0.7 percent is now out of reach, she noted.

Consequently, additional fiscal consolidation measures will be required this year if the government is to keep the public deficit below 5 percent, the economist said. The government commitment to cut the deficit to 4.6 percent this year appears firmly out of reach, she added.

Another report from INSEE showed that household spending grew 0.5 percent in July after a 0.6 percent rise. Consumption of engineered goods moved up 0.5 percent and energy consumption gained 0.8 percent.

French consumer price inflation rose to 2.4 percent in August, a three-month high, up from 2.1 percent in July. Similarly, EU harmonized inflation moved up to 2.7 percent from 2.4 percent in the previous month.

On a monthly basis, consumer prices climbed 0.7 percent after a 0.6 percent increase. The harmonized index of consumer prices grew 0.8 percent after 0.6 percent rise seen in the previous month.

"Economic activity remains simply too weak for higher energy prices to spread more broadly across the economy," ING economist said.