'An unpleasant surprise': France faces spectre of recession

French GDP shrank 0.1% in the first quarter, following a downward revision from earlier estimates. Consumer spending declined more sharply than expected, with construction spending down 1.7% and home renovations showing a rare large drop. Fuel prices rose after disruptions to Gulf oil and gas shipments, contributing to consumer spending falling 0.2% after a 0.3% increase in the prior quarter. Economists warned the data signal weaker growth ahead, with some expecting a second-quarter slowdown that would create a technical recession. Households became more pessimistic, major purchases weakened, and the government’s 0.9% growth target appeared out of reach. Consumer spending fell another 0.5% in April, while inflation accelerated to 2.4% in May.

"French GDP shrank 0.1 percent in the first quarter, official data showed Friday, a downward revision from previous estimates that analysts warn could herald a recession for the eurozone's second-biggest economy. Statistics office INSEE had initially reported zero growth for the quarter, but a sharper decline in consumer spending than expected was "an unpleasant surprise". Dorian Roucher said the revision reflected weaker demand and pointed to specific areas of contraction."

"He noted in particular "very bad figures for home renovations: it's rare to see this sector decline so much", Roucher told journalists, with overall construction spending down 1.7 percent. Consumer spending overall was dented by the surge in fuel prices since the Iran war throttled Gulf oil and gas shipments, falling 0.2 percent after rising 0.3 percent in the fourth quarter of last year. The combination of construction weakness and higher energy costs weighed on household consumption."

"Economists said the figures do not bode well for French growth this year, with some already expecting a further GDP slowdown in the current quarter. That would push France into a technical recession of two straight quarters of contraction. "The recession risk is fairly high," said Mathieu Plane, director of the French Economic Observatory, calling the GDP reading "worrying". ING analysts added that households are becoming more pessimistic and major purchases have weakened noticeably."

"INSEE also reported Friday that consumer spending fell a further 0.5 percent in April from the previous month, while in May, inflation accelerated to 2.4 percent. The agency recently forecast second-quarter GDP growth of 0.2 percent, and a first estimate will be published in mid-June. Roucher said that "the most likely scenario at this time is not a new GD""

Read at The Local France