France's economy contracts

France’s economy contracts

Paris — The French economy contracted unexpectedly in the first quarter due to the fall in exports and investment, while consumer price inflation accelerated to the highest level in more than two years in May driven by the increase in energy prices, official data showed on Friday.

Gross domestic product shrank 0.1% in the first quarter from the preceding period, revised data from the statistical office INSEE revealed. This was in contrast to the initial estimate of nil growth and followed an expansion of 0.2% in the fourth quarter.

The expenditure-side breakdown showed that household consumption dropped 0.2% after rising 0.3% in the prior quarter. Meanwhile, government spending growth improved to 0.3% from 0.2%.

Gross fixed capital formation fell back sharply by 0.6% after rising 0.2%, mainly due to the steep drop in construction investment.

Overall, final domestic demand excluding inventories contributed negatively to GDP growth by 0.2 percentage points.

In the first quarter, exports fell sharply by 3.5% following a 0.9% rise, reflecting the decline in aeronautics exports.

France’s economy contracts

At the same time, imports were down 0.9% compared to 1.0% decrease a quarter ago. Overall, the contribution of foreign trade to GDP growth was negative 0.9 percentage points.

Finally, the contribution of changes in inventories to GDP growth was strongly positive, by one percentage point.

ING economist Charlotte de Montpellier said the economy is expected to contract again in the second quarter, which would push France into a technical recession.

She said the government’s growth target of 0.9% for this year appears clearly out of reach. Growth of around 0.6% would represent a best-case scenario, the economist added.

Another report from the statistical office INSEE showed that consumer price inflation rose to 2.4% in May from 2.2% in April. This was the highest since February 2024. However, inflation was weaker than forecast of 2.6%.

Similarly, harmonized inflation advanced to 2.8% from 2.5% but remained below expectations of 2.9%.

Month-on-month, consumer prices edged up 0.1%, after rising 1% in the prior month. The harmonized index of consumer prices also moved up 0.1% following a 1.2% gain.

In a separate communiqué, the statistical office said household spending declined in April due to the renewed fall in energy consumption. Household spending fell 0.5%, in contrast to the 0.9% rise in March.