Analysis: France 4Q GDP Growth Revised Marginally Higher

4Q10 GDP: +0.4% q/q (+0.3%) 3Q10 GDP: +0.2% q/q (+0.3%) 2Q10 GDP: +0.6% q/q 1Q10 GDP: +0.3% q/q -- PARIS (MNI) - French economic growth was marginally stronger than initially estimated in 4Q, but 3Q's gain was weaker, the national statistics institute Insee said Friday.

Revised 4Q GDP data also showed a weaker quarterly expansion in capital investment, a stronger boost from foreign trade, and a bigger drag from inventory changes.

Quarterly growth in 4Q, first estimated at +0.344%, was revised up to +0.354% -- just enough to boost the rounded result up a tick. Taking into account the downward revision for 3Q, the annual gain in 4Q was left unchanged at +1.5%, as was average full-year growth of 1.5% as well.

Private consumption growth in 4Q was unrevised at 0.9% after +0.5% in 3Q. Spending on manufactured goods surged 1.8% on the back of a spike in car sales ahead of the expiration of public purchasing incentives at year's end. Colder temperatures brought a rebound in energy outlays.

Public consumption growth was revised down to +0.2% from +0.3% after +0.3% in 3Q.

Investment growth slowed more than first estimated to +0.3% (+0.4%) in 4Q after +0.5% in 3Q. Business investment alone expanded 0.5% (+0.6%) after slowing to 0.4% in 3Q, but household investment growth weakened to 0.6% from 1.2%. After a 0.4% downturn in 3Q, public investment contracted further by 0.8% (-0.7%), due in part to harsh weather conditions.

Domestic demand excluding stock changes thus added 0.6 point (0.7 point) to GDP growth after +0.4 point in 3Q.

Quarterly export growth slowed sharply to 1.0% (+0.8%) from +2.6% in 3Q, partly reflecting a drop in energy exports during the refinery strikes. Apart from car purchases, imports contracted, falling back 1.2% after +4.0% (+3.9%) in 3Q. As a result, foreign trade contributed 0.6 point (0.5 point) to 4Q growth after a 0.4-point cut in 3Q.

However, this boost from trade was more than offset by a 0.9-point (0.8-point) negative contribution from inventory changes, concentrated mainly in the aeronautics branch and in semi-finished goods. For the full year, inventory changes added 0.1 point to GDP growth after slashing 1.8 points during the recession year 2009.

Leading indicators point to more sustained growth in the near term, especially in industry.

Insee's manufacturing surveys signal a significant pick-up in growth in 1Q after +0.4% in 4Q. Sector sentiment rebounded to a three-year high in March, as rising orders bolstered output expectations. There was striking recovery of morale in the auto sector, which allays fears of a slump after the expiration of car-buying subsidies.

For once, Insee's surveys are more upbeat than the factory PMIs, which point to overall weaker output and orders growth in 1Q than in 4Q. The Bank of France's polls point to some loss of industry momentum since the start of the year. Nevertheless, the central bank has stuck to its forecast for 1Q GDP growth of 0.8%.

Prospects are also brighter in the services, where sentiment has improved steadily since the end of last year, according to Insee. The PMI index averaged 59.4 in 1Q, up from 54.9 in 4Q and the new business index jumped in March to its highest level (62.2) in over four years.

On the other hand, private consumption, the traditional motor of domestic activity, may well be less supportive. Insee expects inflation and taxes to take a bigger bite out of income gains in the first half of this year, trimming the rise in total real revenues to 0.9% compared +1.2% in the second half of last year. Consumer morale is in the pits, since the economic recovery has had little impact so far on high unemployment and job insecurity. Opinion polls suggest that many households intend to tighten their belts this year and retailers' optimism has eroded since the end of last year.

Still, the latest hard data show spending on manufactured goods more resilient in January than many had feared, posting a 0.6% gain over the 4Q average, despite a half-point decline on the month.

France's chronic trade shortfall is another weak point, as rising oil prices will boost the energy deficit and the strong euro makes it even harder for exporters to hold on to market shares.

--Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com