French economy stalls as stagflation stalks eurozone

France’s economy suffered a sharp slowdown in the first quarter with no growth from the previous three months, undershooting economists’ expectations and raising the specter of stagflation in the eurozone.

The main drag on French growth was a fall in household spending, indicating that higher food and energy prices and the fallout from the Ukraine war are taking their toll on retail spending and consumer confidence.

New price data on Friday showed French inflation rose to 5.4 per cent in April from 5.1 per cent the previous month, the highest level since the data series began in 1997.

Economists said consumer spending was also weighed down by Covid restrictions as the country only lifted the bulk of its coronavirus controls in mid-March, including the requirement to show a vaccine pass to enter many indoor venues.

The disappointing growth figure brings a recent run of French economic outperformance to a halt, despite the eurozone’s second-largest economy benefiting from a more generous pre-election fiscal stimulus and lower inflation than many of its eurozone neighbors.

The flatlining of French gross domestic product in the first quarter marks a sharp slowdown from the upwardly revised 0.8 per cent growth rate in the final three months of last year. Economists polled by Reuters had on average forecast first-quarter growth of 0.3 per cent.

The French national statistics office said on Friday that output was hit by a 1.3 per cent fall in household spending, which offset a 0.2 per cent increase in investment, while changes in inventories added 0.4 percentage points to growth and trade contributed 0.1 points.

Jessica Hinds, an economist at Capital Economics, said that while this year’s fall in French consumer spending was “partly due to Covid restrictions at the start of the quarter, it also reflects rising prices related to the Ukraine war,” adding: “The latter is likely to persist, and will put additional pressure on newly re-elected [president] Emmanuel Macron to provide more help to households. ”

France’s underwhelming start to the year indicated the eurozone was likely to grow at a weaker than expected rate in the first quarter. Eurozone quarterly GDP data are due to be published on Friday and economists on average expect growth to be stable at 0.3 per cent.

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