French GDP contraction piles pressure on government

French GDP unexpectedly fell by 0.1 per cent in the third quarter, according to the National Institute of Statistics and Economic Studies.
This disappointing fall comes after 0.5 per cent growth was reported in the second quarter. A drop in exports of 1.5 per cent was accompanied by declining corporate investment and and a slow down in household spending.

Inflation dropped from 0.9 per cent in September to 0.6 per cent year-on-year in October - a four-year low. The fall may reinforce fears that the Eurozone is in a period of deflation. The figures represent further bad news for the embattled French President, Francois Hollande. S&P downgraded France's credit rating last week and President Hollande's poll ratings slumped, with an approval rating of just 25 per cent, according to a CSA poll.

Commenting on the figures this morning, Berenburg senior economist Christian Schulz said:

The overall Eurozone recovery will help France, but the pressure on the government to reform the labour market and public sector more decisively is strengthening. Otherwise, France will fall further behind its neighbours.

Taken at face value, the rise in inventories may store more trouble for coming quarters, when destocking could lead to lower growth. France is likely to underperform the Eurozone well into next year.