French economy grows 1.1 percent in Q2

22nd August 2006, Comments 0 comments

PARIS, Aug 22, 2006 (AFP) - French economic growth surged an unexpected 1.1 percent in the second quarter, official figures showed Tuesday, with analysts now foreseeing yearly momentum of between 2.2 and 2.5 percent after a disappointing performance in 2005.

PARIS, Aug 22, 2006 (AFP) - French economic growth surged an unexpected 1.1 percent in the second quarter, official figures showed Tuesday, with analysts now foreseeing yearly momentum of between 2.2 and 2.5 percent after a disappointing performance in 2005.

Second quarter growth, as determined by the national statistics institute INSEE in a second estimate, exceeded forecasts of just 0.6 to 0.7 percent and was sharply higher than the first quarter figure of 0.5 percent.

Analysts attributed the April-June output this year to robust consumer spending, non-finance business investment and healthy international demand, notably in neighboring Germany.

"INSEE confirmed it this morning — the French economy was exceptionally dynamic over the second quarter," said Alexander Law of the financial analysis group Xerfi.

The institute said the economy was now on course to expand 1.9 percent this year, after just 1.2 percent in 2005, provided there is no contraction in the months ahead.

But analysts at the bank BNP Paribas foresaw potential full year growth closer to 2.5 percent, while those at Natexis Banques Populaires predicted an expansion of between 2.2 and 2.3 percent.

Law said household spending in the second quarter, which rose 0.7 percent, got a boost from the World Cup, with soccer fans buying up audio-visual devices to follow the French national team, and as consumers benefited from a strong real estate market.

In addition, he said, companies boosted investment by 1.8 percent in the quarter, notably to take advantage of a booming German economy by building up inventories.

At BNP Paribas economist Mathieu Kaiser said that while activity may not be as vigorous in the coming quarters, "momentum is now on a more sustainable growth path ... that should make for an interesting third quarter."

But Alexandre Bourgeois of Natexis Banques Populaires, injecting a note of caution, recalled that the French economic performance is in no way "extraordinary" when compared to the eurozone as a whole or Germany and the United States in particular.

"The perspective for 2007 appears to be difficult," he said, foreseeing a slowdown next year to 1.8 percent.

He pointed to prospects for continued interest rate hikes by the European Central Bank, a strengthening euro that could dampen export opportunities and an increase in German value-added taxes, which could weaken demand in a key market for France.

At Xerfi analyst Law also warned that the second quarter figures do not necessarily presage a sustained recovery.

More vigorous consumer spending triggered a pronounced 3.3 percent jump in imports in the period against a rise of just 1.8 percent in exports.

"The problems French companies have in competing (abroad) are far from being resolved," he said.

INSEE in a first estimate earlier this month put second quarter growth at 1.1 to 1.2 percent.

A third and final estimate is to be released at the end of September.

Copyright AFP

Subject: French news

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