Breaking: France’s Economy Surges in Q1, Beating Expectations

The French economy expanded faster than expected in the first quarter, thanks to a rebound in domestic consumption and investment, paving the way for the eurozone as a whole to tentatively emerge from its recent stagnation.

French GDP increased 0.2% in the first three months of the year, according to official figures released on Tuesday. This exceeded the expectations of economists polled by Reuters, who predicted a 0.1% expansion similar to the fourth quarter of last year.

The increase in activity occurred as inflation’s recent decline stalled in several of the eurozone’s larger members. France reported higher-than-expected consumer price growth of 2.4% in April, following inflation figures of 3.4% in Spain and 2.4% in Germany.

The euro rose 0.1% against the dollar to $1.070 following the release of economic data, extending its recent rally ahead of the US Federal Reserve’s interest rate meeting this week.

Eurozone growth is expected to pick up modestly this year as inflation falls and wages rise, increasing household spending power. Data released on Tuesday showed that the bloc’s GDP increased by 0.1% in the first quarter after flattening in the fourth quarter of last year.

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Domestic consumption is also being boosted by recent bank borrowing cost reductions in anticipation of the European Central Bank’s interest rate cuts beginning this summer.

Consumer spending in France and Germany increased sharply at the end of the first quarter, according to separate data released on Tuesday. French retail sales rose 0.4% in March, while German sales rose 1.8%, rebounding from a 1.9% drop in February to achieve the strongest monthly growth in nearly a year.

However, analysts are concerned that France’s efforts to reduce its stubbornly high budget deficit will have a negative impact on the economy later this year. Claus Vistesen of Pantheon Macroeconomics warned that consumer spending would slow “as household sentiment and purchasing intentions are curbed by the threat of a tax increase to rein in the budget deficit.”

According to the French statistics office, household spending in the eurozone’s second-largest economy increased by 0.4% in the first quarter, while investment rose by 0.3%. Government spending rose by 0.6%. Inventory changes reduced French GDP by 0.2 percentage points, while trade had no impact.