France's economy stalled in the first quarter as household consumption flat lined, businesses pared back investment and exports slowed, underlining the challenge facing Socialist President Francois Hollande who took office on Tuesday.
The Euro zone's second-largest economy posted zero growth in the first three months of the year, the INSEE national statistics institute said, after an anaemic expansion of just 0.1% in the fourth quarter, revised down from 0.2%.
While the data indicated France's nearly 2 trillion Euro economy avoided recession, it painted a grim outlook for 2012 and strengthened Hollande's case for a shift away from austerity in Europe towards more growth orientated policies.
The zero percent growth figures show France's economy returning to stagnation after just two consecutive quarters of positive growth.
Its weak performance was cast in sharp relief by better-than-expected growth in Germany, where the economy expanded by 0.5% in the first quarter, bouncing back more strongly than expected from a small fourth-quarter contraction.
Growth in household consumption, the motor of France's economy, picked up slightly to 0.2% after 0.1% in the fourth quarter.
But capital investment fell 0.8%, after growing 1.3% in the fourth quarter, amid reports of companies struggling to access credit and holding back capital spending until after the April-May elections which gave France its first Socialist president since 1995.
Net trade contributed a negative 0.1% to growth, as imports grew by 0.7% due to demand for refined petroleum products. Export growth slowed to 0.3%, amid weakness in southern European economies.
”Export growth slowed, probably due to weak demand from France's main trading partners (Italy and Spain), which absorb around 15% of exports, said Joost Beaumont, senior economist at ABN Amro.
Meanwhile, companies put investments on the shelf, most likely reflecting the uncertain economic outlook as well as tight lending conditions,” he added.
Hollande forecasts growth of 0.5% this year and 1.7% for 2013 but some expect him to lower these forecasts at July's extraordinary session of parliament to review the budget.
Despite becoming the figurehead for the fight-back against austerity in Europe, Hollande has pledged to respect France's EU commitment to cut its deficit to 3% of GDP by 2013, from 5.2% at the end of the year.