French Stop-Start Recovery Can’t Compete With Spanish Growth

  • GDP rose 0.2% in France, less than 0.3% forecast in survey
  • Spanish economy grew 0.7% in third quarter, matching estimate

French, Spanish Inflation Falls Short of ECB Target

French growth rebounded in the third quarter as part of a start-stop expansion that leaves Europe’s second-largest economy lagging its neighbors such as Spain.

Gross domestic product in France expanded 0.2 percent in the three months through September after shrinking 0.1 percent in the previous period, national statistics office Insee said Friday. That compares with a 0.3 percent increase predicted by economists in a Bloomberg survey. The Spanish economy grew 0.7 percent in the period, in line with estimates in a separate poll.

The data offer a first glimpse of the economic performance in the 19-nation euro region after the U.K.’s decision to leave the European Union increased downside risks to the fragile recovery. Growth rates in the region are set to continue to tell different tales, with the French economy forecast to expand this year at less than half the pace of the Spanish one.

“The big picture is that there is some modest re-convergence between the laggards like France and Italy and the stellar performers such as Spain,” said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva. “That’s the trend beyond the noise and the volatility: both are re-converging towards their potential growth, which is fairly low for France in particular.”

France’s sluggish performance is adding pressure on President Francois Hollande, who has promised to say by mid December whether he will seek a second mandate in an election that is less than six months away. Finance Minister Michel Sapin admitted the third-quarter figures will make it difficult for the government to achieve its full-year growth target of 1.5 percent, though he rejected suggestions that the Socialist Party seek an alternative presidential candidate.

For a second straight quarter French consumer spending was unchanged and corporate investment declined. Inventory building contributed 0.6 percent to growth in the period, while trade generated a 0.5 percent drag on the expansion, Insee said.

Two-Speed Recovery

In Spain, sustained consumer strength and export activity are helping maintain the pace of the recovery as the impact of past reforms and one-off stimulus such as lower oil prices fade. The nation’s unemployment rate fell to the lowest in more than six years in the period, although the bulk of the new jobs were short-term contracts.

The region’s two-speed recovery is keeping pressure on the European Central Bank to maintain unprecedented stimulus. Chief Economist Peter Praet said Wednesday that although the euro-area recovery “is showing signs of resilience, material downside risks remain.” The Governing Council has a crucial meeting in December when it will have new forecasts and an internal report on its bond buying program.

“It is clear that the accommodative monetary stance is having the desired effect in the euro area,” ECB Executive Board member Benoit Coeure said in Frankfurt on Friday. “GDP growth continues, albeit still at a sluggish pace.”

The European Commission releases its estimate of confidence in the euro zone at 11 a.m. Paris time. Overall sentiment will probably be unchanged, while a gauge for business climate may show some improvement, according to another Bloomberg survey. Eurostat will publish third-quarter GDP figures for the 19-nation region on Monday.

— With assistance by Catherine Bosley, Andre Tartar, and Kristian Siedenburg

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE