France, Spain log solid growth in second quarter

Exports were the main driver for France’s stronger-than-expected growth – Copyright AFP Jade GAO

Martine PAUWELS and Jurgen HECKER

The French economy grew faster than expected in the second quarter, official data showed Tuesday, giving a boost to the eurozone.

The French government, battling with deepening deficits and a growing debt mountain, has been hoping that stronger growth will make the task of balancing the books easier.

The French economy — the eurozone’s second biggest after Germany — expanded by 0.3 percent in the second quarter, outperforming the INSEE statistics institute’s earlier estimate of 0.1 percent.

Finance Minister Bruno Le Maire welcomed what he said was the French economy’s “excellent performance”.

Growth figures for Germany and the wider eurozone are due to be released later Tuesday.

Spain, one of the region’s strongest performers, reported a 0.8-percent expansion, driven by exports and strong household spending. The central bank had forecast 0.6 percent growth.

France’s gross domestic product (GDP) was lifted by foreign trade and a recovery in corporate investment.

Exports rose by 0.6 percent, while imports were stable.

The growth figure was in line with the Bank of France’s more optimistic estimate.

Domestic demand made a small positive contribution to growth while consumer spending, a main driver of first-quarter expansion, was steady. In the month of June alone, however, it dropped by 0.5 percent as households consumed less food and energy.

– Domestic demand ‘disappointing’ –

Maxime Darmet, an economist at Allianz Trade, called the headline growth figure “surprisingly good”, but also told AFP that domestic demand had been “very weak for three consecutive quarters” which he said was “very disappointing”.

INSEE also revised its first-quarter growth estimate to 0.3 percent from a previous 0.2 percent, and added 0.1 points to its fourth quarter 2023 growth figure.

France’s economic performance puts it on track to meet, or even exceed, Le Maire’s forecast of 1.0 percent overall growth in 2024, INSEE said.

Le Maire has warned that major savings were needed to return to European Union deficit and debt ceilings by 2027.

The EU has reprimanded France for excessive deficits, and the S&P agency has cut its rating for French long-term debt.

Despite Le Maire’s objective of budgetary cuts of 25 billion euros ($27 billion) this year, government spending actually increased in the second quarter, by 0.6 percent for investment and 0.3 percent for consumer goods.

INSEE said earlier this month that the Olympic Games, currently hosted by France, would generate 0.3 percent points of extra economic growth in the third quarter, taking expansion in the three months to September to an estimated 0.5 percent.

But the Olympic boost could be dampened by political uncertainty following an inconclusive general election, surveys suggest.

The French government led by Prime Minister Gabriel Attal has taken on a caretaker role, with President Emmanuel Macron expected to name a new prime minister next month.

The New Popular Front (NFP), an alliance of leftist parties, emerged from the National Assembly vote as the strongest bloc, but lacks an absolute majority.

The NFP’s candidate to lead the next government, Lucie Castets, said this week that respecting the EU’s deficit and debt rules would not be her “prime objective” if appointed.

Business confidence in France contracted in July, according to a key survey, falling to its lowest level since February 2021.

The Paris stock market was up 0.4 percent in morning deals following the data release.