French economy ekes out meagre growth in Q3, inflation hits record high By Reuters

By Richard Lough

PARIS (Reuters) – France’s economy eked out meagre growth in the third quarter as household spending stagnated and a sharp jump in inflation in October pointed to the headwinds looming in the final quarter of the year.

France’s economy grew 0.2% in the July-September period, in line with market expectations, preliminary data from the INSEE official statistics agency showed.

Meanwhile, consumer prices in October spiralled higher. On an EU-harmonised basis, inflation rose 1.3% month-on-month, driven upwards by petrol product costs and food prices.

The year-on-year rate came out at 7.1% versus 6.2% a month earlier, INSEE said, surpassing a previous record high of 6.8% for the euro zone’s second largest economy hit in July.

October’s surge in inflation followed two consecutive months of slowing consumer price rises. France has fared better than its neighbours in taming price rises although some economists have warned that its heavy spending on blanket protection for households was storing up pain for later.

The French data comes a day after the European Central Bank raised interest rates again, worried that rapid price growth is becoming entrenched. It lifted its deposit rate by a further 75 basis points to 1.5% – the highest rate since 2009.

INSEE earlier this month forecast stagnant growth for the final three months of the year.

The outlook for France, remained difficult with inventories likely to make a negative contribution to growth from the next quarter, ING analysts said.

“Indeed, the deterioration of order books and the current high level of inventories are likely to lead to a voluntary reduction of inventories by companies in the coming months.”

“Moreover, with investment at half-mast, risks to energy supply, persistently high inflation and an overall slowdown in demand for exports, it is difficult to expect a strong recovery in growth in the second half of 2023.”

French President Emmanuel Macron this month in a newspaper interview cautioned policymakers against “demand destruction”.

ECB President Christine Lagarde on Thursday pushed back on political criticism that rapid rate hikes threatened to push the euro zone into recession, arguing that her job was to get inflation under control.

(This story has been corrected to change September inflation to 6.2% from 6.1% in paragraph 4)