France set to avoid recession as economy expands in fourth quarter

France’s economy grew unexpectedly in the last quarter of 2022, suggesting that the eurozone’s second-largest economy is expected to avoid a recession.

The economy grew by 0.1 percent between the third and fourth quarters, the National Statistics Agency Insee said on Tuesday. Although this was below the 0.2 percent increase recorded in the previous quarter, it was a slight improvement on the forecast of no change recorded by Reuters.

The French figures come after Germany reported a fourth quarter contraction of 0.2% on Monday, putting the eurozone’s largest economy on the brink of recession. Eurozone figures later today are expected to show the region’s economy contracted by 0.1 percent.

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Finance Minister Bruno Le Maire said France’s growth is “proof of the resilience of our economy after the shock of Covid and its resilience in the energy crisis”.

France’s economy has now grown by 1.2 percent more than before the coronavirus pandemic – a stronger recovery than Germany’s.

Le Maire said the French economy will continue to grow in 2023. “The courage of our entrepreneurs and workers is extraordinary. Let’s continue!

However, Charlotte de Montpellier, an economist at ING bank, said this year would be “characterised by the volatility” of the French economy.

Foreign trade drove France’s growth in the fourth quarter as exports fell sharply, signaling weakness. Income also grew, but household consumption fell by 0.9 percent as higher energy costs weighed on household income. Food spending fell for the fourth quarter in a row, while energy consumption fell 5.5 percent, reflecting milder weather and efforts to reduce consumption.

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The economy grew by 2.6 percent in 2022, reflecting a rise in employment as the pandemic subsides.

Data also published on Tuesday showed French inflation rose in the year to January. The annualized primary interest rate rose to 7 percent, from 6.7 percent last month, reflecting strong growth in energy and food prices.

Real GDP line chart, from Q4 2019=100 showing France's GDP grew by 0.1 percent in Q4 2022

Although inflation in France is lower than elsewhere in Europe due to government programs to reduce energy prices, economists expect inflation to slow here this year.

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Riccardo Marcelli Fabiani, an economist at Oxford Economics, a research firm, said: “The government should reduce inflation because it frees up income for families and leaves other options because of their high costs.”

Data published on Tuesday showed that German sales fell sharply in December and recorded the biggest decline since records began in 1994 for food sales, reflecting the impact of higher prices.

Additional reporting by Daria Mosolova in London and Leila Abboud in Paris


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