France: The slow cyclical recovery continues

Taking account of the recent hard data, a marked slowdown in Q2 growth is expected, clocking in at 0.3% qoq after a strong 0.6% qoq in Q1 15. There is no change to the June GDP forecast although the risk appears slightly tilted to the downside. Indeed, industrial output fell sharply in Q2 (-0.7% qoq) whereas construction output (housing, corporate and public investment) dropped by 0.5% qoq. Net trade is likely to be the main contributor to GDP growth, adding 0.2pp to GDP growth in Q2. This improvement is not expected to be sustainable, as it stems from exceptional sales of transport equipment (notably aircrafts and satellites) which reached a new record high. After the strong positive contribution in Q1 (0.5pp of GDP), the inventory component is likely to contribute negatively by 0.3pp of GDP in Q2. 

Consumption is set to slow from 0.9% qoq in Q1 to 0.2% qoq in Q2. Indeed, goods consumption decreased by 0.1% qoq in Q2, which basically offset the stunning 1.5% qoq growth recorded in Q1. This was mainly due to energy consumption (-2.2% qoq in Q2 after 3.7% qoq) on the back of a mild spring. The construction sector remained weak in Q2 and this is likely to continue in the coming months according to business surveys, reinforcing the view that French growth will underperform the rest of the euro area this year (1.2% vs 1.5%). 

"We expect consumer confidence to improve from H2 2015 onwards in response to the improving labour market and lagged effects from lower oil prices, which would also enable a decline in the savings rate. The hope is also that business confidence improves when both the tax cuts and the lower oil prices start to boost profit margins by end- 2015, in particular in the manufacturing sector," says Societe Generale.