France’s economy unexpectedly returned to contraction in the third quarter as investment dropped, dealing a new blow to French President Francois Hollande’s efforts to revive the eurozone’s second-largest economy.
The 2 trillion euro (US$2.7 trillion) economy shrank 0.1 percent in the quarter, slowing sharply from growth of 0.5 percent in the previous three months, the INSEE statistics agency said yesterday.
The preliminary reading fell short of expectations for slight growth of 0.1 percent, according to a Reuters poll of 22 economists.
Economic activity was widely expected to slow after the economy surged out of a shallow recession in the second quarter because of one-off factors, such as exceptionally high electricity production brought on by particularly cold weather.
“The new contraction in activity will definitely not help president Hollande to improve his popularity among the electorate — which currently stands at a record low,” IHS economist Diego Iscaro said. “Moreover, the weakness of the economy may make it more difficult to achieve [a] consensus to go ahead with the structural reforms the French economy badly needs.”
INSEE reported that domestic demand was flat in the third quarter, while investment fell 0.6 percent and household spending rose 0.2 percent.
Stock rebuilding by companies had a positive effect, adding 0.5 percent to output, while rising imports and falling exports meant foreign trade put a 0.7 percent drag on the economy.
French Finance Minister Pierre Moscovici said that the weak third-quarter reading was due to temporary factors, such as a slowdown in aircraft orders, and he stuck with his forecast for growth of between 0.1 percent and 0.2 percent over the whole of the year.
“The productive forces are starting up again, production is recovering,” Moscovici said on RTL radio. “We knew the third quarter would mark a pause, it’s not a surprise, it’s not an indicator of decline, it’s not a recession.”
Hollande’s government faces growing concerns about its ability to revive growth, with Standard & Poor’s cutting France’s sovereign rating to “AA” from “AA+” on Friday last week over such doubts.
Adding its voice to a growing chorus calling for France to carry out more reforms, the Organisation for Economic Co-operation and Development said yesterday that France was falling behind southern European countries that have overhauled their economies to become more competitive.
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