Consumer spending to help France resist global slowdown: central bank

March 14, 2019

By Leigh Thomas

PARIS (Reuters) – The French economy will grow marginally slower this year than previously expected although improving household purchasing power should help limit the impact of a global slowdown, the country’s central bank said on Thursday.

The Bank of France forecast growth of 1.4 percent this year in its quarterly economic outlook, marginally less than the 1.5 percent it predicted in December. The economy grew 1.5 percent in 2018.

At the rate forecast by the central bank, France will easily outperform its more export-dependent neighbor Germany, where the government and private institutes expect growth of 1 percent or lower due to weak foreign demand.

Since growth in France is more dependent on consumers at home, its economy should benefit from a 10 billion euro ($11.3 billion) package of concessions to protesters aimed at boosting spending power and quelling a wave of violent demonstrations.

In December, President Emmanuel Macron announced wage increases for the poorest workers and a tax cut for most pensioners in an effort to stifle anti-government protests that saw some of the worst street violence in decades in Paris.

The central bank estimated the measures would boost households’ purchasing power this year by 0.7 percentage points, and in turn lift consumer spending by 0.3 percentage points.

Households would likely squirrel away the rest of the income gains, pushing the savings rate to 15.4 percent this year before easing lower afterwards.

Low inflation, seen at 1.3 percent this year before gradually rising to 1.7 percent by 2021, would also favor households’ income gains.

Meanwhile, job creation was seen slowing although stronger productivity would lead to higher wages, the central bank estimated.

Looking further out, French economic growth was seen rising marginally to 1.5 percent in 2020, before easing back to 1.4 percent in 2021.

(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)

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