French central bank bumps up 2017 growth forecast to 1.8 percent

France’s economy has grown faster than expected this year thanks to surging business and household investment and could gain further steam if reforms bear fruit, the central bank said.

Growth this year is expected to have reached the fastest pace since 2011 at 1.8 percent, and should be followed by 1.6-1.8 percent annually through to the end of the decade, the Bank of France said in a biannual update of its forecasts.

The central bank had previously estimated growth of 1.6 percent in 2017, 2018 and 2019. Its latest forecast for this year tops the 1.7 percent expected by the government.

The bank said growth could turn out faster in 2019 and 2020 if reforms boosted the economy’s potential output.

The French economy has benefited from a rebound in its main trade partners while consumer and business confidence has surged since the election of President Emmanuel Macron in May.

Boosted by low interest rates, business investment has jumped 4.1 percent this year and will slow to a more moderate but still healthy pace, the bank’s outlook said.

External trade would switch from being a drag on the economy to a source of growth next year as French firms won back market share internationally despite the negative impact of a strong euro on export prices.

“Growth is more balanced than in the past. In domestic demand, investment – especially from companies – is taking up the baton from consumption and external trade should weigh less than in the past,” Bank of France Governor Francois Villeroy de Galhau said in an interview with Les Echos newspaper.

The central bank said wage gains would boost purchasing power and thus consumer spending. Household investment, made up primarily of new home purchases, would ease back after surging 5.1 percent this year amid exceptionally low interest rates.

Unemployment would average 9.6 percent this year and next, before gradually falling to 8.8 percent by 2020.

Inflation was seen averaging 1.2 percent this year before rising to 1.4 percent in 2018 mainly because of planned tax increases on tobacco and diesel.

On public finances, the central bank estimated the deficit would be kept to slightly less than three percent of economic output this year and next but warned that the government would have to react quickly to rein in any slippage in spending.
Source: Reuters (Reporting by Leigh Thomas; Editing by Maya Nikolaeva and Andrew Roche)