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France's economy contracts in second quarter

Outside the Printemps department store in a shopping district in Paris, France (file photo)
Outside the Printemps department store in a shopping district in Paris, France (file photo) Reuters/Eric Gaillard

France's economy contracted by 0.1 percent in the second quarter, France's Insee statistics agency. Friday's reporting revises an initial estimate of zero growth, suggesting both consumers and businesses held back spending from April through June.

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The French government on Tuesday said it was sticking to its forecasts of 1.5 percent growth this year and next, which are key for its tax and spending plans as well as honouring the promise to Brussels to bring the public deficit back under the EU-limit of 3.0 percent of gross domestic product (GDP).

The French economy grew by 0.7 percent in the first three months of the year.

Economists have been sceptical of the government's growth forecast, although Finance Minister Michel Sapin said on Tuesday that domestic factors supporting growth had been "more vigorous than expected" since the beginning of the year and was set to continue.

However Insee's revised data released Friday showed households trimmed spending by 0.1 percent in the second quarter, after having spent 1.1 percent more in the first quarter.

Investment by businesses fell 0.2 percent after a 1.3 percent rise in the first quarter.

A source at the finance ministry told French news agency AFP that the downward revision "does not call into question the scenario of 1.5 percent growth for this year and next" as GDP growth in the first two quarters still corresponds to 1.1 percent annual growth.

The French economy appears set to post slight growth in the third quarter, with the Banque de France saying earlier this month it expects a 0.3 percent expansion.

 

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