France grows faster than expected but stuck in deflation

Frances economy grew 0.5% in first quarter of 2016, a bit faster than median expectations of 0.3% growth. Better growth in Euro Zone’s second largest economy should come as a respite for European Central Bank (ECB), which unleased large package of measures this year to tackle ailing growth and inflation. Best part has been major employment gains. Unemployment dropped 1.7% in February, biggest in 15 years.

Better data may also provide some relief to incumbent Socialist President Francois Hollande, whose popularity is at lowest for any current President. He is struggling to gather support for his re-election next year and facing major threat from right wing Euro-skeptic political group led by Marine Le Pen.

Despite the better growth outcome, to the disappointment of European Central Bank (ECB), France remained firmly in deflationary territory as of April. On EU harmonized basis, prices declined -0.1% from a year ago and dropped -0.2% on monthly basis. This came despite increase in consumer spending to 2.7% y/y, compared to 1.6% in March.

Data on Euro Zone inflation will be released later today at 9:00 GMT.