(Bloomberg) --
France’s economy grew more than expected in the third quarter, a sign it’s avoiding some of the global manufacturing malaise that’s probably pushed Germany into a recession.
France, the euro area’s second-largest economy, is standing out from the European gloom as it’s less exposed to trade difficulties and more reliant on domestic demand, which the government has spurred with tax cuts. Gross domestic product increased 0.3% from the second quarter, thanks to accelerating household spending and business investment.
The euro rose slightly after the report and traded at $1.1118 as of 10:04 a.m. Paris time.
The country’s performance provides some reassurance for a European economy beset with low growth, wavering investment and rising uncertainty.
In his final press conference last week as president of the European Central Bank, Mario Draghi warned of risks things will get worse, even after he unleashed fresh monetary stimulus in September.
Data for the euro area are expected to show Thursday that the economy expanded only 0.1% in the third quarter, which would be the weakest performance in over six years. Germany, the largest economy in the bloc, probably slipped into a technical recession, although that won’t be confirmed until mid-November.
Separate figures on Wednesday showed German jobless claims resumed their increase in October, rising by a more-than-forecast 6,000. The unemployment rate remained at 5%.
Economists also forecast a closely watched survey due later will see confidence in the euro area at its lowest level since 2015.
What Bloomberg’s Economists Say
“Weakness in manufacturing is likely to have spread to services, prolonging the slowdown. Leading indicators are consistent with growth remaining slow at least until early 2020, but don’t signal a deep downturn.”
--Jamie Rush, Maeva Cousin and David Powell. Read the EURO-AREA PREVIEW
The strength of France’s GDP numbers came exclusively from domestic demand, while trade was a drag on growth.
It “shows that government handouts to households can provide an effective and welcome boost to the economy in the face of external shocks,” said Maeva Cousin, a euro-area economist at Bloomberg Economics. “After banking most of the fiscal giveaways in the first half, French consumers opened their wallets, with car purchases in particular helping to offset the deterioration in net trade.”
Yet the outlook for the French economy is mixed. While data for October shows a rebound in services and solid consumer sentiment, a gauge of manufacturing confidence has slipped below its long-term average for the first time in four years.
There are also uncertain signals coming from French companies. Renault SA has slashed its revenue and profit outlook as weakening economies are dampening sales and the French carmaker struggles with emission rules that have already hobbled German rivals. At the same time, equipment suppliers in the auto sector have stuck to their guidance for this year.
With the outlook deteriorating, much of the focus is on the need for fiscal action to add to the ECB’s monetary stimulus.
Incoming ECB President Christine Lagarde told French radio RTL on Wednesday that growth globally is “precarious” and “fragile,” and countries with fiscal space “haven’t really made the necessary efforts.”
“We are of course thinking of countries that have chronic budget surpluses like the Netherlands and Germany and a few others in the world,” she said. “Why not use this fiscal surplus and invest in infrastructure. Why not invest in education, in innovation to have a better re-balancing in the face of current imbalances.”
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