France's economic growth unexpectedly accelerated in the first quarter, expanding at the fastest pace in two years, as consumer spending in Europe's third-biggest economy helped compensate for slowing exports. Gross domestic product, the value of all goods and services, grew 0.8 percent from the fourth quarter, when it expanded a revised 0.6 percent, national statistics office Insee said in a first estimate. Economists had predicted growth of 0.5 percent, according to the median of 31 forecasts.
France's growth is on course to outpace the average of the 12 nations sharing the euro for a seventh straight year in 2004. Household spending has been more robust than in Germany or Italy, leaving France's recovery less dependent on exports, even with unemployment close to a four-year high of 9.9 percent. ``The French economy will probably manage to achieve growth of 2 percent this year, which is pretty good for the big European economies,'' said Gabriele Widmann, an economist at Dekabank in Frankfurt. ``France has become something like a growth locomotive for Europe in recent years and it looks like it's going to keep its role.'' The acceleration in growth was ``in line with the increase in household spending,'' Insee said in the report, which didn't provide a breakdown of GDP components. The figures are adjusted for inflation and seasonal swings.
Outpacing U.K.
Tax cuts have given French households more money to spend. Prime Minister Jean-Pierre Raffarin trimmed households' income tax by 3 percent this year, bringing the reduction since he took office two years ago to a total of 10 percent. France's growth exceeded the 0.6 percent rate of the U.K. economy in the same period, the first time it has outstripped the pace of expansion in Europe's second-biggest economy since the second quarter of 2002. GDP still grew at a slower clip than the U.S., where the economy expanded 1 percent in the period.
Germany, Europe's largest economy, probably expanded 0.3 percent in the January-March period, little changed from the 0.2 percent expansion in the fourth quarter, according to the median forecast of 22 economists. Italy may have grown 0.2 percent, after a stagnation in the fourth quarter, a survey of 30 economists showed. Those two countries report GDP tomorrow. French consumer spending on manufactured goods rose 2 percent in the first quarter, more than double the pace in the previous three months. That growth, driven by discounting in January and February, will probably slow this quarter, economists said.
`Not Sustainable'
``Those trends in consumer spending aren't sustainable and destroy growth,'' said Emmanuel Ferry, an economist at Exane SA, a brokerage in Paris. They are based on ``very strong preferences for low-cost imported products.'' Consumer spending probably helped compensate for a slowdown in French export growth after the euro's ascent to a record on Feb. 18 made French goods less competitive on overseas markets. A report from Insee yesterday showed French industrial production rose 0.3 percent in the first quarter, less than half the 0.7 percent pace of the previous three months. The single currency has declined about 7 percent since reaching a record of $1.2930 on Feb. 18, trading at $1.1892 at 10:54 a.m. in Frankfurt. Confidence among French manufacturers held at a 34-month high in April as exporter optimism rose.
LVMH, Arcelor
LVMH Louis Vuitton SA, the world's biggest luxury goods company, had its first sales gain in five quarters in the first three months, helped by rising demand for watches and wine. Arcelor SA, the world's largest steelmaker, earlier this week had a record quarterly profit a further increase in earnings. The global economy may expand 3.4 percent this year, up from the 3 percent predicted in November, the Organization for Economic Cooperation and Development said yesterday. The U.S. economy, the world's largest, will probably grow at the fastest pace in two decades this year, or 4.7 percent, it said. The OECD predicts 2 percent expansion for France this year, almost double the pace of 1.1 percent it forecasts for Germany and higher than the 1.6 percent it expects for the euro region.
Weak growth in Germany is holding back the recovery in the region as a whole. The euro economy probably expanded 0.4 percent in the first quarter, little changed from 0.3 percent in the previous three months, the median forecast of 39 economists showed ahead of a release on Friday. The European Central Bank has rejected calls from political leaders such as German Chancellor Gerhard Schroeder to help revive growth by cutting interest rates. ECB President Jean-Claude Trichet said last week that recent economic reports have been ``more encouraging,'' when leaving the main refinancing rate at a six-decade low of 2 percent. ///www.bloomberg.com