French Economy Shrinks In Q3; Inflation Softens

France’s economy contracted in the third quarter on weak global demand and inflation slowed to the lowest since early 2022 as economic activity remained subdued adding to hopes that the European Central Bank would start policy easing earlier than markets currently anticipate.

Gross domestic product fell by a revised 0.1 percent on a quarterly basis, after expanding 0.6 percent in the preceding period, revised data from the statistical office INSEE reported.

The INSEE had initially estimated 0.1 percent growth for the third quarter.

Driven by higher consumption of goods, household spending increased 0.6 percent, in contrast to the 0.1 percent drop in the preceding period.

Government spending rose 0.5 percent after increasing 0.1 percent a quarter ago.

At the same time, growth in gross fixed capital formation slowed to 0.2 percent from 0.5 percent mainly due to the further decline in investment in construction.

Exports declined 1.0 percent driven by transport equipment and transport services. At the same time, imports gained 0.1 percent after a 2.4 percent expansion.

Consequently, foreign trade made a negative contribution of 0.4 points to GDP growth.

Finally, changes in inventories made a negative contribution of -0.2 points to GDP growth this quarter after adding 0.5 points in the second quarter.

Household consumption declined in October on weaker spending on food and energy, the statistical office said in a separate report.

Consumption decreased 0.9 percent after staying unchanged in September.

Flash data released by INSEE showed that consumer price inflation slowed to the lowest since early 2021, reflecting the slowdown in the prices of services, energy and manufactured products and food.

Headline inflation slowed to 3.4 percent in November from 4.0 percent in October. The current 3.4 percent was the weakest since January 2022.

Month-on-month, the consumer price index, or CPI, dropped 0.2 percent, in contrast to the 0.1 percent rise in October.

Inflation, based on the harmonized index of consumer prices, softened more-than-expected to 3.8 percent from 4.5 percent.

The HICP rate was seen at 4.1 percent. The index slid 0.3 percent from the previous month, offsetting October’s 0.2 percent gain.

ING economist Charlotte de Montpellier said the trend towards disinflation is well underway in France and will continue over the coming months, against a backdrop of marked economic slowdown.

Separate data revealed that producer prices declined at a slower pace of 1.2 percent annually in October, following a 1.5 percent decrease in September.

On a monthly comparison, prices remained unchanged after a 0.6 percent increase.

Retail sales excluding automobiles declined 1.0 percent in October from September, when they grew 0.2 percent, another report from INSEE showed.

During the three months to October, retail sales were 2.7 percent lower than in the same period a year earlier.

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