French First-Quarter GDP Growth Revised Down to 0.5%

By Francois de Beaupuy and Helene Fouquet

June 27 (Bloomberg) -- France's gross domestic product rebounded less than initially estimated in the first quarter as household spending, the driving force of the economy, failed to grow.

Europe's third-biggest economy expanded 0.5 percent in the quarter from the previous three months, when it grew a revised 0.4 percent, Paris-based government statistics office Insee said in an e-mailed statement today. In its preliminary report on May 15, Insee said GDP grew 0.6 percent in the latest quarter.

The first quarter ``was a bit supernatural,'' said Jean- Christophe Caffet, an economist at Natixis in Paris. ``From there on, growth figures will be particularly bad.''

Soaring energy and food prices are stoking inflation, crimping consumers' spending power across the 15-nation euro region. European Central Bank President Jean-Claude Trichet said June 5 that the ECB may increase its benchmark rate next month to rein in inflation expectations even as economic growth slows.

French inflation, based on a non-EU harmonized method, will peak at a 17-year high of 3.6 percent in the coming months before slowing to 2.8 percent in December, Insee forecast earlier this month. Inflation will average 3.2 percent in 2008, the highest since 1991 and up from 1.5 percent last year, Insee said.

As a result of soaring prices, consumer spending, which has been the main engine of French growth in the past decade, remained flat in the first three months of 2008 after growing 0.5 percent in the fourth quarter, and 0.8 percent in the third, Insee said.

Purchasing Power

French households saved 16 percent of their disposable income in the first quarter, unchanged from the fourth quarter, Insee said. Their gross purchasing power failed to grow after having added 1 percent in the earlier quarter.

France's economy will expand 1.6 percent this year, the slowest pace in five years, as rising prices damp consumer spending and the housing market slumps, Insee said on June 20. Confidence among French consumers fell to a record low in June, a report said yesterday.

Producer prices rose 1.3 percent in May from April and jumped 6.7 percent from a year earlier, Insee said in a separate report today. Economists polled by Bloomberg expected a 0.6 percent increase on the month, according to the median of 15 forecasts.

Consumer Spending

``If consumer spending clearly slows in relation to the faster inflation and the decrease in households' purchasing power, we may hope trade will in turn contribute to growth'' through lower imports and stronger exports to countries such as Germany, said Mathieu Plane, an economist at Paris-based Observatoire Francais des Conjonctures Economiques.

Exports jumped a revised 3.2 percent in the first three months of the year. In a June note, Insee said it expects exports to drop 0.1 percent in the second quarter and show little growth in the second half.

Imports also increased by 2.3 percent in the first three months after having fell 1.1 percent he previous quarter. Trade added 0.3 percentage points to the fist quarter compared with 0.7 percentage points the last three months of 2007, Insee said.

French GDP will grow 0.2 percent in the second quarter, the least in almost two years and a third of the pace of the first three months of 2008, Insee said last week. The economy will stagnate in the third quarter and expand 0.2 percent in the final three months, Insee said.

``The second quarter won't be as solid and strong as the first, but even so I think that Insee's forecasts are very gloomy,'' French Finance Minister Christine Lagarde said in a Bloomberg Television interview on June 19. She cited job creation and falling unemployment as reasons to be optimistic.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.