PARIS, March 24 (Reuters) – The French economy is set to maintain moderate growth in the first half of the year as higher inflation linked to the war in Iran weighs on activity, the national statistics office INSEE said on Tuesday, trimming its forecasts.
The euro zone’s second-largest economy is expected to expand by 0.2% in both the first and second quarters, matching the fourth-quarter rate, INSEE said in its short-term outlook. That is down from previous projections of 0.3%.
As the war in Iran roils global energy markets, inflation is forecast to rise above 2% in the coming months from 1.1% in February, INSEE said.
Higher inflation will erode household purchasing power, though price pressures will remain lower than elsewhere in the euro zone due to France’s relatively modest wage growth and still-competitive services prices, it said.
Household consumption, traditionally the engine of French growth, is expected to slow at the start of the year as higher fuel prices curb spending on energy and transport-related goods, INSEE said.
Purchases of vehicles and oil products are seen falling in the first quarter, while spending on services is expected to hold up better before coming under pressure in the spring.
Business investment is forecast to be broadly flat early in the year, with companies remaining cautious amid geopolitical uncertainty and weak demand, INSEE said.
Foreign trade is seen weighing on growth in the first quarter as exports fall sharply due to a temporary drop in aircraft and ship deliveries.
In the second quarter, growth is expected to remain steady as higher inflation begins to have a broader impact. Household consumption is seen edging up slightly as energy spending normalises, but spending on non-essential goods is expected to ease.
Business investment is forecast to pick up only modestly, while public investment is likely to contract further, leaving the economy reliant on a rebound in exports to offset domestic headwinds.
(Reporting by Leigh Thomas. Editing by Mark Potter)
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