French economic growth unexpectedly slowed in the second quarter, adding to risks for a eurozone already shaken by a manufacturing slump and frailties in its largest economy, Germany.
France was expected to show greater resilience as it is less exposed to the slowdown in international goods trade and more reliant on domestic demand that French President Emmanuel Macron tried to turbo-charge with a 17 billion euro (US$19 billion) stimulus.
Despite the tax cuts, announced in response to the Yellow Vests protests, consumer spending growth weakened.
The second-quarter expansion of just 0.2 percent — below economists’ 0.3 percent estimate — is another blow for policymakers already fighting fires in other parts of the eurozone.
European Central Bank President Mario Draghi, expected to loosen monetary policy again in September, has warned that the outlook is getting “worse and worse.”
The economic slowdown is being felt across multiple countries and regions.
Sweden’s economy unexpectedly shrank in the second quarter, casting further doubts on the Riksbank’s plans to continue to raise rates.
Sweden’s GDP contracted 0.1 percent in the second quarter from the first, according to preliminary numbers from Statistics Sweden yesterday.
Meanwhile, Japan’s factory output last month suffered its second-largest drop in the past five years.
Industrial production dropped 3.6 percent from a month earlier, pulled down by lower output of autos and flat panels, the Ministry of Economy, Trade and Industry said.
For the eurozone, the French figures might be just one disappointment in a gloomy week. Data release today are expected to show growth in the region slowed by half to 0.2 percent.
The German economy probably contracted, according to the Bundesbank.
French growth was driven exclusively by domestic demand, with company investment and public spending accelerating. Net trade did not make a contribution, while inventories weighed on output.
The government saw reasons for optimism. French Secretary of State for Economy and Finance Agnes Pannier-Runacher said investment would drive future growth and job creation, adding that some of Macron’s tax cuts for households would not kick in until early next year.
“At this stage, there is no reason to be anxious about our pace of growth,” she said on French television LCI.
That confidence might be undermined if manufacturing weakness infects the rest of the French economy.
Sentiment in the sector dropped to a six-year low last month as automotive, plastics and electronics production slumped, according to a recent Bank of France survey.
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