Business confidence in France remains on track

Business confidence in France remains on track article image

Despite the recent terror attacks, Brexit and numerous strikes relating to new labour laws, business confidence remains high in France.

Coface, a global leader in credit insurance and risk management, forecasts 1.6% GDP growth in France this year and 1.3% growth in 2017.

Despite the recent problems, France retains a country risk assessment of A2 (very low).

However, Coface says a number of factors could pose a downside risk to the 1.6% 2016 growth forecast.

In Quarter 2 this year GDP growth was stable (0%) after +0.7% in Quarter 1.This figure is below Coface expectations.

Household consumption slowed down sharply (0% after 1.2%) and gross fixed capital formation surprised on the downside as well (-0.4% after 1.3%). External trade balance contributed positively to GDP growth (+0.3 p%) despite exports decline, as imports turned back significantly.

According to Coface, French activity may have been negatively impacted by numerous strikes related to the Labour law between May and June.

Decline in household confidence

And household consumption has been dragged downby higher oil prices in the second quarter (+33% QoQ). Household confidence has also declined somewhat in Q2.

On a sector by sector basis, service exports may have been impacted by diminishing activity of hotels, restaurant (2.5% of GDP) and transport (4%) sectors on the back of terrorist attacks.

French hotels group Accord has already warned that terrorist attacks weighed on its business in the first half of the year when net profit dropped by 23%. Tourism accounts for 7.4% of GDP.

But Coface says despite this disappointing figure in Q2, key leading indicators are still well oriented. Business insolvencies are expected to decline in coming months (-3.2% expected this year).

On the investment side, business confidence is high.

In July this year, business confidence improved despite the Brexit risk.

Strong demand for investment loans

The composite indicator, compiled from the answers of business managers from all sectors, has gained two points and has returned to its May level. At 102, it stands slightly above its long-term average (100).

According to the July bank lending survey released by the ECB, loan demand of French corporates for fixed investments loans is one of the highest in Europe.

Construction investment should be positive in the second half of the year because authorized dwelling increased by 5% in the second quarter (QoQ). According to the last survey conducted by INSEE in July 2016, the outlook on expected housing starts for the next three months has improved (both for sales and rents). They stand above their long-term average.

On the consumption side, household confidence has weakened again slightly to 96, it remains 1 point above the 2015 average. 

And Coface predicts Brexit will affect growth marginally (by 0.1% only this year).

Automotive (14% of French exports) and agro food (17.5%) will be the most impacted sectors. 


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