28 November 2004

EZA 645: France - Sectoral Outlook

France; Sectoral Outlook: mini-spending boom over, consumption slackens, GDP returns to long term trend of (<2%)
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SummarySharp normalisation of growth signals an end to the surprise, unsustainable, H1 2004 boom in household spending. GDP and consumption now back to trend growth (< 2%). Investment, construction, and housing-related sectors will continue to outperform. Private consumption: mini-boom now over, the pace of advance (+0.4% q/q) will match poor fundamentals for jobs and income; as the influence of other supportive factors becomes more neutral. Business investment: companies' outlook remains positive but further adjustment is needed to restore profitability - especially with margins hit by oil prices and euro strength - and address increased competition in foreign/domestic markets. Investment will grow moderately (+0.9% q/q, less in industrial sector), mostly through productivity-enhancing and replacement expenditure which will weigh on job creation and private spending. Construction: public sector demand and factors favouring households' housing investment should support continued activity; stabilisation of household' demand is expected, non-residential construction will slowly recover; public demand to remain dynamic. Exports: though improving, net foreign trade will continue to suffer from structural weaknesses, oil price tensions and euro strength. This will penalise exports growth while boosting non-oil imports. Consumer-related sectors: despite the sharp awakening to poor fundamentals, some sectors should perform well: household equipment; durable goods; banking, transport, but uncertainties for carmakers, retailing, non-durables Investment related sectors: these should perform well: equipment goods (transport, electronics), IT, marketing, consultancy

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© Graham Bishop