France is set to close 2017 with its best growth rate in six years thanks to booming business investment and new home buying, the INSEE national statistics agency said on Tuesday. French growth will reach 1.9 percent this year, INSEE forecast, marking a marginal upgrade from its previous estimate of 1.8 percent.
Not only was the forecast well above the 1.1 percent recorded last year, but it also exceeds the government's forecast for 1.7 percent growth and the central bank's projection last week for 1.8 percent. With business confidence soaring and interest rates still not far from record lows, INSEE estimated business investment would rise 4.4 percent this year, lifting broader domestic demand.
As a growing number of companies reported trouble keeping up with demand, INSEE said that there was no reason that their investment spending would slow. Also benefiting from the impact of low interest rates, household investment - which is 80 percent made up of new home purchases - was seen surging 5.2 percent this year.
Meanwhile, the drag from external trade was seen narrowing as exports rise on the back of economic strength in France's main trading partners, INSEE said. Consumer spending was expected to ease as inflation bit into households' purchasing power, which would also take a hit from an increase in social security tax at the start of 2018.
Inflation would also rise at the beginning of the year as increases in tobacco and diesel taxes took effect. It was seen rising from an annual average of 1.2 percent in 2017 to 1.6 percent through the first half of next year. As the economy gained steam, INSEE projected the unemployment rate would resume its gradual descent after rising to 9.7 percent in the final quarter of this year due to the reduction in the number of subsidised job contracts.
By the middle of next year it was seen at 9.4 percent. On a quarterly basis, INSEE forecast growth would reach 0.6 percent this quarter before easing marginally to 0.5 percent in the first three months of 2018 and 0.4 percent in the second quarter.
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