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French economy grows at fastest pace since 2000

The gross domestic product of the euro zone’s second biggest economy rose by 1.1-1.2 percent in the second quarter compared with the first three months of the year, the strongest quarterly growth rate since the fourth quarter of 2000, INSEE said.

The early estimate was well above the consensus forecast that growth would pick up to 0.7 percent from 0.5 in the first quarter, and triggered a decline in euro zone government bond futures as economists revised up their growth forecasts.

“It is a really surprising performance and we weren’t expecting it ... (It) takes us back to what we could almost call a golden age of the French economy,” said Natexis Banques Populaires’ Alexandre Bourgeois.

“We are revising upwards are (growth) forecasts to 2.2-2.3 percent for the year, in the heart of the government range.”

Finance Minister Thierry Breton said the data vindicated his 2006 growth forecast of 2.0-2.5 percent: “The French economy is doing very well. The figures that INSEE is publishing this morning are quite exceptional,” he said.

The report highlighted the sort of improved growth that has already prompted the European Central Bank to raise euro zone interest rates to 3.0 percent and to flag that further monetary tightening lies ahead.

What boosted growth?

While the early GDP estimate does not include a breakdown of the components of growth, consumer spending has been the mainstay of economic expansion for some time and official figures show that trend remains in place.

INSEE data showed spending rose at its fastest pace in a year in June as consumers snapped up cars and household goods, building on an already strong performance in May when purchases of televisions before the soccer World Cup boosted spending.

More recently, industrial production figures have turned more supportive, prompting financial market analysts to become less sceptical about Breton’s growth forecast.

“The two main pillars of this growth are consumption .... and the good performance of industrial production, which grew 0.8 percent in the second quarter,” said Bourgeois.