French growth goes negative in second quarter

Paris: French growth suffered a downward revision on Friday, just days before the government puts together its final budget ahead of presidential elections next year.

France`s economy contracted by 0.1 percent in the second quarter, the Insee statistics agency revising an initial estimate of zero growth.

This adds a layer of uncertainty to ambitious growth and deficit targets that President Francois Hollande`s team reaffirmed only on Tuesday as campaigning for 2017 presidential elections gets underway.

The revision, which shows both consumers and businesses held back spending in April through June, highlights France`s difficulties in combining spending boosts in the run-up to the presidential vote with the need to bring the French deficit in line with eurozone rules.

Hollande has not said whether he is seeking re-election, but if he does, his economic record will be key, including France`s stubbornly high unemployment rate.

Finance Minister Michel Sapin said earlier this week that the government was sticking to its forecasts of 1.5 percent growth this year and next, which is instrumental for its tax and spending plans as well as honouring the promise to Brussels to bring the public deficit back under the EU-limit of 3.0 percent of gross domestic product (GDP).

The French economy grew by 0.7 percent in the first three months of the year. 

Economists have been sceptical of the government`s growth forecast, but Sapin said that domestic factors supporting growth had been "more vigorous than expected" since the beginning of the year and was set to continue.

However Insee`s revised data released Friday showed households trimmed spending by 0.1 percent in the second quarter, after having spent 1.1 percent more in the first quarter.

Investment by businesses fell 0.2 percent after a 1.3 percent rise in the first quarter."Taking into consideration public spending, overall domestic demand (excluding stocks) provided no contribution to GDP growth in the second quarter of 2016," said Insee, noting it had provided a 0.9 percent boost at the start of the year.

A source at the finance ministry told AFP that the downward revision "does not call into question the scenario of 1.5 percent growth for this year and next" as GDP growth in the first two quarters still corresponded to 1.1 percent annual growth.

The French economy appears set to post slight growth in the third quarter, with the Banque de France saying earlier this month it expects a 0.3 percent expansion.

This view seemed to be borne out a key survey by data monitoring company IHS Markit published Friday.

While Markit`s preliminary September Composite Purchasing Managers Index (PMI) report was disappointing for the eurozone as a whole, France came out well compared to its peers.

The PMI index for France came in at a 15-month high at 53.3 points after 51.9 in August.

"The data raise hopes of a firmer GDP print for the third quarter after growth ground to a halt in Q2," Jack Kennedy, Senior Economist at IHS Markit, said in the statement.