The French economy accelerated sharply in 2017 to record its fastest expansion in six years as businesses raised their investment spending in response to President Emmanuel Macron’s efforts to cut taxes and regulations.
Gross domestic product in the eurozone’s second-largest economy rose 1.9% in 2017 from 2016, national statistics agency Insee said.
Growth was spread evenly through the year, with a slight acceleration to 0.6% quarter-on-quarter in the final three months of the year from 0.5% in the third quarter. The figures were in line with economist expectations.
The acceleration in 2017 from 1.1% growth in 2016 marks the end of half a decade of French inertia that has kept unemployment close to 10% and held back the broader European recovery.
The acceleration in France has helped offset cooling in Spain, the eurozone economy that has grown most rapidly over recent years. Figures also released Tuesday showed the eurozone’s fourth largest member slowed slightly in 2017, growing by 3.1% in 2017 as against 3.3% in 2016.
Eurozone GDP figures published later Tuesday are expected to show France’s resurgence helped drive growth in the currency bloc to its highest level since 2007.
France’s economic growth picked up pace in 2017 as tailwinds from rising global demand and the European Central Bank’s expansionary policies coincided with a confidence boost when Emmanuel Macron defeated populist rivals to win the presidential election on a pro-business platform. Firms and investors have applauded his first steps to cut red tape and taxes that economists have long blamed for the country’s relative economic malaise.
Investment by nonfinancial companies rose 4.3% in 2017, Insee’s statistics showed. The outlook for investment also remains strong as the statistics bureau’s monthly business surveys are running at decade-highs.
The upswing is giving France greater clout on the European and global stage. At the World Economic Forum in Davos last week, Mr. Macron struck an uncharacteristically confident pose for a French leader, proclaiming “France is Back” and demanding business leaders and heads of state overhaul the rules of global trade.
His government plans more economic overhauls this year to remove barriers to growth for small French companies and help them compete in export markets.
“The message I wanted to convey here in Davos is very clear: it is only the beginning of the story,” French finance minister Bruno Le Maire said in an interview with The Wall Street Journal.
Mr. Macron inherited a naissant economic acceleration from his predecessor François Hollande. Business investment was rising, fueled by tax breaks and rising corporate margins as Mr. Hollande’s cut to payroll taxes came into full force.
But French entrepreneurs say the election was a turning point that unleashed pent-up demand.
At business travel agent Travel Planet, customers were managing their travel expenses from one day to the next before the vote, said chief executive Tristan Dessain-Gélinet. After Mr. Macron’s election victory, he said, clients began reserving travel four to five months into the future, a rare level of commitment in the industry. By the end of 2017, revenues at his 100-strong company were up over 50% from 2016 at around EUR100 million.
“When people have come close to the abyss, they revise their way of seeing things,” said Mr. Dessain-Gélinet.
The speed of Mr. Macron’s decrees to loosen labor laws turbocharged confidence, companies say. In a booming construction sector, large firms switched from hiring equipment to investing in their own diggers and trucks, said the head of JCB France Françoise Rausch. The French unit of JCB expects to have slightly outpaced growth in its sector in France of around 19% to 23% in 2017.
“People think it’s rational, but there is always a psychological and subjective side to investment which is based on a belief in the future,” Ms. Rausch said.
French consumers–traditionally the economy’s main driver–also supported economic growth in 2017, although less so than the previous year. Consumer spending rose 1.3% after a 2.1% increase in 2016.
Source: Dow Jones