France and Spain outstrip gloomy economic forecasts in fourth quarter

The French and Spanish economies both fared better than expected in the final quarter of last year, despite the resurgence of the coronavirus pandemic and restrictions to contain it that weighed on consumer and business activity across Europe.

The French economy shrank 1.3 per cent in the fourth quarter from the previous three months, leading to a record 8.3 per cent contraction last year, the national statistics institute said in its initial estimate on Friday. That was better than the 4 per cent quarterly contraction expected by economists polled by Reuters and was also ahead of the government’s revised forecasts. 

Spain’s economy grew 0.4 per cent in the fourth quarter, down from a 16.4 expansion in the previous three months, official Spanish data showed. The reading was much better than the 1.5 per cent contraction forecast by economists polled by Reuters and it was driven by growth in household and government consumption, while investment shrank.

However, the stuttering pace of both countries’ recovery from the economic impact of the pandemic prompted some economists to predict that the eurozone risks sliding into a double-dip recession this winter. 

The European Central Bank forecast last month that eurozone gross domestic product would shrink by 2.2 per cent in the fourth quarter, leading to a decline of 7.3 per cent over the whole year. 

That compares with continued GDP growth in the US and China in the fourth quarter, underlining how Europe has been hit harder by the spread of the virus and is expected to recover more slowly than the world’s two biggest economies. China grew 2.3 per cent over the course of last year, while the US shrank 3.5 per cent.

French consumer spending fell 5.4 per cent in the final quarter, but investment grew 2.4 per cent, as businesses were far less disrupted by the country’s second lockdown than the first. Foreign trade made a positive contribution as exports rose 4.8 per cent, while imports were up 1.3 per cent. 

Jessica Hinds, economist at Capital Economics, said France’s better than expected performance reflected “both the fact that the autumn’s measures had a narrower focus and also that households and firms have been better able to adapt to the restrictions”.

Despite Spain’s fourth-quarter growth, the country’s GDP shrank 11 per cent over the course of last year, almost treble its contraction during the financial crisis in 2009 and the largest since the second world war.

The country’s economy was hit particularly hard by the pandemic because of its large tourism sector, which was shut for most of the year in an effort to limit the spread of the virus.

Spain still has a national curfew in place and regional restrictions, but schools remain open. Indicators of consumer mobility and of business and consumer sentiment have weakened in January, reflecting the rising number of infections and suggesting Spain risks a fresh contraction in the first quarter of 2021.

The French government is considering whether to impose another lockdown as coronavirus infections remained stubbornly high at the start of this year. Finance minister Bruno Le Maire has warned that another lockdown would mean the French economy misses its forecast of 6 per cent growth this year.

While French schools and non-essential shops have been allowed to reopen, the government has imposed a 6pm curfew and kept restaurants, bars, leisure companies and ski resorts closed. 

The national statistics agency said this did not prevent consumer spending from rebounding in December, when it outstripped expectations by rising 23 per cent from the previous month — giving French retailers a boost over the critical Christmas period.

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