French economy shrugs off euro zone slowdown in Q2

Credit: REUTERS/Charles Platiau

By Leigh Thomas

PARIS, Aug 29 (Reuters) - France's economy expanded faster than expected in the second quarter, proving - for now - to be impervious to the slowdown taking hold of the broader euro zone, official data showed on Thursday.

The euro zone's second biggest economy grew 0.3% in the quarter, unchanged from the previous three months, the INSEE statistics agency said, revising the figure up from a provisional estimate of 0.2%.

The revision means that France outpaced the broader euro zone where the economic output of the overall bloc slowed to 0.2% from 0.3% three months earlier.

The relative resilience of the French economy contrasts sharply with the export-dependent German economy, which is teetering on the brink of recession.

Germany, the euro zone's biggest economy, contracted 0.1% in the second quarter as global trade tensions and uncertainty over Britain's exit from the European Union took their toll.

While the German slowdown is fuelling debate there about the need for a jolt of economic stimulus, France is already receiving an exceptional injection of public money into the economy this year.

President Emmanuel Macron brought forward planned tax breaks and incentives for companies to give workers bonuses together worth more than 10 billion euros ($11.14 billion).

Macron rushed to pump the extra cash into the economy at the end of last year after facing violent anti-government "yellow vest" protests triggered in part by frustration over dwindling household purchasing power.

However, so far the extra cash has not translated into higher consumer spending, although it is helping to keep household confidence at elevated levels despite the deteriorating economic outlook abroad.

INSEE said consumer spending growth - traditionally the motor of the broader economy - eased to 0.2% from 0.3% in the first quarter.

Higher inflation ate into consumers' purchasing power, as households disposable income fell 0.2% after surging 0.8% in the first quarter, boosted by the package of tax breaks and bonus scheme.

The slower consumer spending was partially offset by a pick-up in business investment, which grew 0.9% after 0.6% in the first quarter as corporate profit margins increased to 33.1% - the highest since mid-2008 - from 32.6%.

Meanwhile, the economy has started the third quarter on a firm footing with INSEE reporting that consumer spending grew 0.4% in July from June, against economists' expectations for an increase of 0.3%.

Data earlier this week showed consumer and business confidence held steady in August, defying the gloom setting in much of the euro zone.

($1 = 0.8973 euros)

(Reporting by Leigh Thomas; editing by Richard Lough and Toby Chopra)

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