French GDP improves, sustainability remains challenge

European Central bank's record quantitative easing might have provided boost to France's ailing economy which has bounced back in the first quarter.

• GDP grew 0.6% q/q and 0.7% from a year ago. The growth is still anemic, but relatively stronger given overall weakness in Euro zone.

Real question stands will the recovery in France be sustained?

Underlying GDP component continue to pose doubt on it, suggesting first quarter recovery might be temporary phenomenon.

• House hold consumption grew by 0.8% in first quarter, however gross fixed capital formation dropped by -1.4%.
  
  
• Government's consumption expenditure growing at 0.4% provided support to first quarter GDP, however this is not sustainable or will go up any time soon given fiscal balancing task ahead.

• Worst part of French GDP has been the country's reliance on imports and ailing domestic sector. Weaker Euro will not be of any good, given France's large deficit within Euro zone. Net foreign trade contributed about -0.5% in GDP reading.

French economy would turn out to be much weaker in Euro zone, given France's lesser appetite for reforms. This is not very bright news for French companies and CAC40 index.

With yield on the rise, CAC40 runs higher risk of divergence in performance from growing Euro zone countries, given weaker growth in France's economy.