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Financial News: French Economy Shrinks; Inflation At Record High

French Economy Shrinks; Inflation At Record High

05/31/2022 - 09:33:00 (RTTNews)

(RTTNews) - The French economy contracted in the first quarter on weak household spending, and inflation rose further to a new record in May largely due to higher energy prices, official data showed on Tuesday.

Gross domestic product fell 0.2 percent sequentially, instead of previously estimated stagnation and in contrast to the 0.4 percent growth in the fourth quarter of 2021. The expenditure-side breakdown showed that household spending decreased 1.5 percent largely reflecting the fall in spending on transport equipment and other manufactured goods.

Conversely, the total gross fixed capital formation was on the rise again, up 0.6 percent. In total, final domestic demand excluding inventories contributed negatively to the evolution of GDP, by -0.6 points.

Exports increased 1.2 percent and imports gained 0.5 percent. Thus, the contribution of foreign trade to the evolution of GDP was slightly positive by +0.2 points.

Household consumption will again contribute negatively to growth in the second quarter, given the inflationary context and the decline in confidence, Charlotte de Montpellier, an ING economist, said.

Consequently, a further contraction of GDP in the second quarter is expected, the economist said. It means that, the French economy is currently in a de facto recession.

In April, household spending fell 0.4 percent on month, but less than the 1.4 percent decline in March, the statistical office said in a separate communiqué.

Food consumption decreased 1.1 percent and manufactured goods consumption was down 0.3 percent. Meanwhile, spending on energy rebounded 0.7 percent.

Another report from Insee showed that consumer price inflation accelerated to a record 5.2 percent in May from 4.8 percent in April. The rate was forecast to climb to 5.0 percent.

Likewise, flash EU harmonized inflation advanced to 5.8 percent from 5.4 percent in April. This was also faster than economists' forecast of 5.6 percent.

Month-on-month, the consumer price index gained 0.6 percent after rising 0.4 percent in April. The harmonized index of consumer prices grew 0.7 percent, faster than the 0.5 percent rise in the previous month.

Producer prices in the domestic market stabilized in April after the strong 4.5 percent increase in March, data showed. Over a year, the industrial producer prices for the home market accelerated to a record 27.8 percent from 26.8 percent in March.

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