Financial News: French Economy Contracts; Inflation Accelerates

French Economy Contracts; Inflation Accelerates

(RTTNews) - The French economy contracted unexpectedly in the first quarter due to the fall in exports and investment, while consumer price inflation accelerated to the highest level in more than two years in May driven by the increase in energy prices, official data showed Friday.

Gross domestic product shrank 0.1 percent in the first quarter from the preceding period, revised data from the statistical office INSEE revealed. This was in contrast to the initial estimate of nil growth and followed an expansion of 0.2 percent in the fourth quarter.

The expenditure-side breakdown showed that household consumption dropped 0.2 percent after rising 0.3 percent in the prior quarter. Meanwhile, government spending growth improved to 0.3 percent from 0.2 percent.

Gross fixed capital formation fell back sharply by 0.6 percent after rising 0.2 percent, mainly due to the steep drop in construction investment.

Overall, final domestic demand excluding inventories contributed negatively to GDP growth by 0.2 percentage points.

In the first quarter, exports fell sharply by 3.5 percent following a 0.9 percent rise, reflecting the decline in aeronautics exports.

At the same time, imports were down 0.9 percent compared to 1.0 percent decrease a quarter ago. Overall, the contribution of foreign trade to GDP growth was negative 0.9 percentage points.

Finally, the contribution of changes in inventories to GDP growth was strongly positive, by 1.0 percentage points.

ING economist Charlotte de Montpellier said the economy is expected to contract again in the second quarter, which would push France into a technical recession.

She said the government's growth target of 0.9 percent for this year appears clearly out of reach. Growth of around 0.6 percent would represent a best-case scenario, the economist added. Another report from the statistical office INSEE showed that consumer price inflation rose to 2.4 percent in May from 2.2 percent in April. This was the highest since February 2024. However, inflation was weaker than forecast of 2.6 percent.

Similarly, harmonized inflation advanced to 2.8 percent from 2.5 percent but remained below expectations of 2.9 percent.

Month-on-month, consumer prices edged up 0.1 percent, after rising 1.0 percent in the prior month. The harmonized index of consumer prices also moved up 0.1 percent following a 1.2 percent gain.

In a separate communiqué, the statistical office said household spending declined in April due to the renewed fall in energy consumption. Household spending fell 0.5 percent, in contrast to the 0.9 percent rise in March.

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