French economy accelerates, stoking ECB debate

Paris - French growth accelerated in the fourth quarter as part of a wider economic expansion in the region that is fueling a debate about how quickly the European Central Bank (ECB) should trim stimulus.

French gross domestic product rose 0.4% in the October-December period, national statistics office Insee said. That matches the median estimate in a Bloomberg survey and compares with 0.2 percent growth in the previous three months.

The figures suggest that France is contributing to the eurozone’s recovery after lagging both Germany and Spain in recent years. With inflation also picking up across the region, discussion about the European Central Bank’s €2.28trn bond-buying program is set to intensify.

“The eurozone is getting good nominal growth and rising inflation, a scenario in which pressure on the ECB is going to increase,” said Michel Martinez, an economist at Societe Generale in London. “There are fewer and fewer people who will understand the need to continue doing quantitative easing.”

In the eurozone, growth probably accelerated to 0.5% in the fourth quarter from 0.3%, while the inflation rate rose to 1.5% in January from 1.1% the previous month, according to separate Bloomberg surveys. Eurostat will release those data at 11:00 Paris time.

Household spending and corporate investment spurred France’s fourth-quarter expansion, allowing domestic demand to contribute 0.6 percentage point to growth. External trade added 0.1 percentage point, Insee said.

The French economy grew 1.1% in all of 2016, compared with 3.2% in Spain and 1.9% in Germany.

Lagging recovery

France’s expansion was dented in last year as multiple terrorist attacks caused a drop in tourism and unusual weather hit farm output. Yet by the final quarter, tourism was beginning to revive while low interest rates were spurring construction and tax cuts were driving investment, Martinez said.

As a result, sentiment among factory executives climbed to a five-year high and consumer confidence is at its strongest since 2007.

“Despite global political risks, 2017 begins with good economic conditions,” Finance Minister Michel Sapin said in a statement.

Even so, the unemployment rate remains stuck close to 10%, compared with about 4% in Germany, according to Eurostat’s measure. The lack of job creation and the lagging recovery forced President Francois Hollande to declare in December that he wouldn’t seek re-election.

France’s 2017 presidential election is scheduled for two rounds on April 23 and May 7.

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