Olympic bonanza sends French growth bounding higher

The figure from statistics agency INSEE was in line with the eurozone-wide average also published Wednesday, placing France between the bloc's ailing heavyweight Germany, at 0.2 percent, and sprinter Spain, which added 0.8 percent.

After expansion of just 0.2 percent in each of the first two quarters, faster growth was "good news", Finance and Economy Minister Antoine Armand said in a statement sent to AFP.

The expansion offered "gains going into the months ahead that will be aided by inflation retreating, falling interest rates and reforms the government has set in train".

Growth was driven faster by a 0.5-percent increase in consumer spending, which accounts for more than half of French GDP.

Spending by households had been suppressed in recent years as they felt the squeeze from higher energy prices and interest rates.

"A large part of this increase (around half) is linked to the consumption of recreational services in connection with the Paris Olympic and Paralympic Games," INSEE said in a statement.

Especially notable factors were ticket sales and sales of multimedia distribution rights.

But the benefits did not stretch to all sectors, with a majority of Paris restaurants and hotels telling their GHR industry body the Games had a negative impact, in a survey published Wednesday.

The capital's eating establishments suffered from the effects of road closures near Olympic stadia and messaging that encouraged locals to work from home.

Nationwide, weaker areas included trade, which added just 0.1 percentage points to GDP in the third quarter as imports fell faster than exports.

Investment also took a 0.8-percent hit, with a steeper 1.4 percent decline for business investment.
Politics weighs heavy
"This significant weakness is the black spot on the report" for the third quarter, said Maxime Darmet, an economist for Allianz Trade.

He suggested that businesses were holding off on investments as financial conditions "remain complicated" for many following the surge in interest rates and inflation.

Some may also be looking anxiously at national politics, where President Emmanuel Macron's gamble on new elections this summer has left France in a precarious position.

Prime Minister Michel Barnier's government has no majority in parliament and could be toppled at any time.

Ministers are currently wrangling with the leftist NFP alliance, far-right National Rally (RN) and their own centrist and conservative colleagues in parliament over a government budget for 2025 that many see as doomed to fail.

If they joined forces in a confidence motion, the NFP and RN together could bring down the government and France could then be left rudderless as no new election can be held until July at the earliest.
Tax and cuts
Looking to the immediate future, the Olympic boost looks like a last hoorah for 2024 in INSEE's growth forecast, which sees no further expansion in October-December.

That would mean the French economy booking 1.1-percent growth for the full year -- in line with its 2010s pre-Covid performance, but less than half the expected pace of the US economy, the fastest growing in the G7 group of advanced countries.

In 2025, growth could be slowed if the government manages to pass its budget, which aims to slash France's deficit from an alarming six percent of GDP expected this year.

Tens of billions of dollars in tax increases and public spending cuts would batter growth by up to 0.5 percentage points next year, Allianz's Darmet said.

French think-tank OFCE estimates the impact to be even higher, at up to 0.8 points.

Some countervailing forces can be expected next year, including from continued interest rate cuts by the European Central Bank as inflation eases.