French economic growth likely to rebound modestly, GDP likely to grow 1.3% in 2016, 1.6% in 2017

France faces downside risks to its economic outlook due to increasing uncertainty post the terrorist attacks in Paris in November. There has been a slight slowdown in retail sales, indicating that consumption might be retreating. In 2015, consumption was the main growth driver of the French economy.

However, the negative impact of the Paris events on the economy might be for a temporary period of time given the resilient consumer confidence and signs of stronger business confidence. According to the French Statistical Office INSEE, the Paris events are expected to have impacted GDP growth by -0.1%.

"Looking ahead, French real GDP is forecast to advance by 1.3% in 2016 and 1.6% in 2017, up from 1.1% last year, underpinned by stronger domestic demand, which should counterbalance less favourable external conditions, particularly in emerging markets", says Scotiabank.

Subdued inflation, lower oil prices and lower interest rates are expected to boost consumer spending and rebound business profit margins. This can result in further growth in industrial production and begin boosting business investment at a time when increasing survey optimism indicates towards the possibility of a rebound in construction activity.