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The French economy expanded slightly faster than expected in the first quarter on a rebound in domestic consumption and investment, setting the stage for the wider eurozone to tentatively emerge from its recent stagnation.
The 0.2 per cent growth in French gross domestic product in the first three months of this year was above the forecasts of economists polled by Reuters, who had expected the 0.1 per cent reported in the final quarter of last year.
The euro rose 0.2 per cent against the dollar to $1.69 on the news, extending its recent rally ahead of the US Federal Reserve meeting on interest rates this week.
Eurozone growth is expected to pick up modestly this year as inflation slows and wages rise, boosting household spending power. GDP data to be released later on Tuesday is expected to show the bloc’s economy expanded 0.1 per cent in the first quarter after flatlining in the final quarter of last year.
Domestic consumption is also being supported by recent reductions in borrowing costs by banks in anticipation that the European Central Bank will start cutting interest rates this summer.
Consumer spending rose sharply in France and Germany at the end of the first quarter, according to separate data released on Tuesday. French retail sales rose 0.4 per cent in March, while in Germany they were up 1.8 per cent, rebounding from a 1.9 per cent decline in February to achieve the strongest monthly growth for almost a year.
However, analysts worry France’s efforts to reduce its stubbornly high budget deficit could weigh on the economy later this year. Claus Vistesen at Pantheon Macroeconomics warned that consumer spending would slow “as household sentiment and purchasing intentions are curbed by threat of a tax increase to rein in the budget deficit”.
The French statistics office said household spending accelerated in the eurozone’s second-largest economy to expand 0.4 per cent in the first quarter, while investment rebounded to rise 0.3 per cent. Government spending rose 0.6 per cent per cent. Changes to inventories knocked 0.2 percentage points off French GDP, while trade had zero impact.
Additional reporting by Philip Stafford in London