France monthly activity data do not augur well for Q1 growth

Favorable business confidence surveys support the prospect of a strong growth figure in Q1 2017 after a 0.4 percent q/q growth in Q4 2016. Favourable confidence surveys and particularly upbeat business confidence survey supports arguments for strong Q1 growth.

France composite business climate index averaged 104 in the first quarter, data from INSEE showed. The composite index was also slightly higher than the Q4 2016 average of 103, signalling a possible acceleration in growth from one quarter to the next.

Upbeat PMI indices add to the optimism. The composite index has gained 6.2 points in just four months, to 57.6 in March with the first quarter average rising to 55.9. The size of the rebound in PMI and its underlying momentum, were however, not replicated in the other business confidence surveys.

The monthly economic data for January and February, on the contrary, cloud the message and raise downside risks to growth in the first quarter.  Industrial output declined in both months while household spending was dented by sharp swings in energy spending. Headline consumption on goods increased 0.6 percent m/m in January, before declining 0.8 percent m/m in February. The decline in manufacturing output was broad based, touching virtually all sectors of activity.

"Our Nowcast model based on hard data points to first-quarter growth of 0.2% q/q, compared to 0.5% q/q based on soft data. In comparison, the INSEE is forecasting growth of 0.3% q/q, the same as the Bank of France after the 0.1-point downward revision in its March update." said BNP Paribas in a report.