French economy expands faster than expected in second quarter

France’s economy expanded faster than expected in the second quarter, proving - for now - to be impervious to the slowdown taking hold of the broader eurozone, official data showed.

Higher inflation ate into consumers’ purchasing power, as households disposable income fell 0.2% after surging 0.8% in the first quarter, boosted by the package of tax breaks and bonus scheme.

The eurozone’s second biggest economy grew 0.3% in the quarter, unchanged from the previous three months, the INSEE statistics agency said, revising the figure up from a provisional estimate of 0.2%.

The revision means that France outpaced the broader eurozone where the economic output of the overall bloc slowed to 0.2% from 0.3% three months earlier.

The relative resilience of the French economy contrasts sharply with the export-dependent German economy, which is teetering on the brink of recession.

Germany, the euro zone’s biggest economy, contracted 0.1% in the second quarter as global trade tensions and uncertainty over Britain’s exit from the European Union took their toll.

While the German slowdown is fuelling debate there about the need for a jolt of economic stimulus, France is already receiving an exceptional injection of public money into the economy this year.

President Emmanuel Macron brought forward planned tax breaks and incentives for companies to give workers bonuses together worth more than 10 billion euros ($11.14 billion).

Macron rushed to pump the extra cash into the economy at the end of last year after facing violent anti-government “yellow vest” protests triggered in part by frustration over dwindling household purchasing power.

However, so far the extra cash has not translated into higher consumer spending, although it is helping to keep household confidence at elevated levels despite the deteriorating economic outlook abroad.

INSEE said consumer spending growth - traditionally the motor of the broader economy - eased to 0.2% from 0.3% in the first quarter.

The slower consumer spending was partially offset by a pick-up in business investment, which grew 0.9% after 0.6% in the first quarter as corporate profit margins increased to 33.1% - the highest since mid-2008 - from 32.6%.

Meanwhile, the economy has started the third quarter on a firm footing with INSEE reporting that consumer spending grew 0.4% in July from June, against economists’ expectations for an increase of 0.3%.

Data earlier this week showed consumer and business confidence held steady in August, defying the gloom setting in much of the euro zone.

Meanwhile, France will need to export 20.1 million tonnes of soft wheat this season after harvesting its second-largest crop in history, French consultancy Agritel said.

France, the European Union’s largest wheat producer and exporter, has only reached that level of exports three times before.

The country harvested 39.2 million tonnes of soft wheat this year, up 14.9% on last year, Agritel said, confirming its July estimate.

More than half of France’s exports this year, or 11.3 million tonnes, will need to go outside the EU, Agritel said.

Although the challenge to export 20 million tonnes is high, it is reachable, notably supported by good competitiveness against maize and on global markets, the consultancy said.

“Pressured by the large harvest and helped by the weak level of the euro, French wheat is starting to be more competitive,” Agritel Director General Michel Portier said. “However, to meet this export challenge, it will absolutely need to remain competitive until the end of the campaign, limiting potential for higher prices,” he said in a statement.

French soft wheat’s main export markets are Algeria, Morocco and Egypt.

Exports will also be helped by good quality levels this year, Agritel said.

In its report published on Wednesday, farm office FranceAgriMer said 86% of the French soft wheat crop was at minimum 11% protein, meeting quality requirements on many export markets.

Specific weights, another measure of wheat quality, were also good with 65% of the crop above 79 kg per hectolitre, while 100% of it had a Hagberg falling number of 240 seconds, a benchmark for bread making, FranceAgriMer said in a note issued with crop institutes Arvalis.

At EU level, all-wheat exports this season could reach 26 million tonnes. That would be the highest of the past three seasons, allowing the bloc to remain the third largest global exporter after Russia and the United States, Agritel said.

EU wheat output this year rose by 12.8 million tonnes but is still limited due to disappointing production levels in some Iberian and eastern European countries, it said.

Reuters