France: Consumer Spending Continued To Improve In May

An improving labor market, together with a boost in purchasing power from tax cuts and higher wages, is pushing consumers back into stores. Consumer spending increased in April and May and should support growth in the second half of the year.

Source: iStock

French consumers are slowly heading back to the shops

Figures published this morning confirm that French consumers are slowly heading back to the shops. Consumer spending on goods increased in May by 0.4% month-on-month after 0.3% in April. Yearly growth figures are now back in positive territory after several negative months during the “yellow vest” crisis. The improvement in May is broad-based but is supported by the transport segment, as the car market is recovering from last summer’s shock (new CO2 emission rules). Other durable goods also saw an increase in spending, in line with the recent recovery in big purchase intentions measured in consumer surveys.

An improving labor market, together with a boost in purchasing power from tax cuts and higher wages, is pushing consumers back into stores, which should support private consumption growth in the second half of the year and in 2020. That said, because of high saving intentions and a negative base effect from the second half of 2018, private consumption growth in 2019 should be barely above 1%, after only 0.9% last year. It is probably only when households feel they have rebuilt their savings that these measures will have a stronger effect on private consumption, which is why we expect it to grow by 1.4% in 2020.

Consumer confidence at 14-month high is driving up spending

Source: Thomson Reuters

What does it mean for GDP?

Looking at the first quarter figures, it seems that domestic demand will still need some time to recover from the abnormal levels of anxiety recorded at the turn of the year in consumer surveys. They still show a strong preference for savings and higher fears of unemployment than in the first half of last year, despite the resumption of job creation. Given the expected slowdown of the economic environment in Europe in 2019 and 2020, GDP growth should remain at a level close to its potential (1.3%) in these years before slowing down in 2021 when we expect the effect of a more global downturn to be felt throughout Europe.

For more, read the French chapter of our eurozone quarterly.