French Q2 economic growth revised up to 1.2 percent

PARIS - The French economy grew faster than initially reported in the second quarter, spurred on by a jump in business investment and strong consumer spending, official data showed on Thursday.

By (Reuters)

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Published: Thu 28 Sep 2006, 6:52 PM

Last updated: Sat 4 Apr 2015, 1:24 PM

The gross domestic product of the euro zone’s second largest economy expanded 1.2 percent, the fastest pace in five and a half years, compared with the previous quarter, according to the latest report from national statistics office INSEE.

In the first two estimates, second quarter growth was reported at 1.1 percent. That followed growth of 0.4 percent in the first quarter, which was revised down in the latest report from 0.5 percent.

Analysts were pleasantly surprised by the latest revision.

“The figures are good,” said Philippe Waechter, chief economist at Natexis Asset Management.

In the Netherlands, the second quarter economic growth rate was also revised up on Thursday, to 1.2 percent from 1.0 percent reported earlier.

Consumer spending in France was revised up to 0.8 percent from a previously reported 0.7 percent. Business investment jumped 2.3 percent, up from a previously reported 1.8 percent.

Disposable household income surged to 1.4 percent from 0.6 percent in the previous quarter while the savings rate rose slightly to 14.8 percent.

“The good results for consumption in the second quarter did not happen to the detriment of the savings rate,” said Waechter.

“There is an effect of an improvement ... of available revenue, an improvement in ... economic factors, whether it’s companies or households, which is a good sign for economic growth.”

Some economists had revised up their outlooks for the economy after the initial reports for the second quarter.

Exporters struggle

However, more recent reports on trade and industry have raised questions about whether the fast pace of growth can be sustained in the second half of the year and into 2007.

The GDP report provided further evidence that French companies are having trouble exporting. Export growth was revised down to 1.6 percent from 1.8 percent.

“It’s always the same story,” said Dominique Barbet, economist at BNP Paribas.

“German growth ... is driven by exports and industry, whereas in France we have growth driven by consumption, services and by construction while exports are in retreat.”

But economists say the numbers put France on track for growth within the government’s forecast of 2.0 and 2.5 percent for this year.

Prime Minister Dominique de Villepin has painted falling unemployment and fast growth as a success story for the ruling party ahead of next year’s election.

His government unveiled its 2007 budget based on an outlook growth of 2.0 to 2.5 percent next year. Some economists said this might be optimistic given the poor trade figures and an expected slowdown in neighbouring Germany.

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