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French economic growth slowed down by 'Yellow Vests' protests

Christophe Archambault, AFP | Protesters wearing yellow vests (gilets jaunes) demonstrate on the Champs-Elysees in Paris, on December 15, 2018 against rising costs of living they blame on high taxes.

French growth should bounce back early next year after violent anti-government protests and wilting business confidence cut short a previously expected year-end recovery, the INSEE stats agency said on Tuesday.

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The euro zone's second-biggest economy is on course to grow only 0.2 percent in the final three months of the year, down from 0.4 percent in the third quarter, INSEE forecast in its quarterly outlook.

INSEE had previously predicted growth of 0.4 percent in the final quarter as the economy rebounded from a weak start to the year. But it cut its estimate, forecasting the protests would lop 0.1 percentage points off quarterly growth, with softer business confidence accounting for the rest of the revision.

But even before the protests, business confidence had been deteriorating in the face of international trade tensions, INSEE said.

As a result for the whole of 2018, INSEE forecast growth of 1.5 percent, downgraded from 1.6 percent in its previous outlook in October and down from a decade-long high of 2.3 percent last year.

Looking ahead to next year, INSEE forecast growth would rebound 0.4 percent in the first quarter as consumer spending recovered after a weak end to 2018. Growth was then expected to ease to 0.3 percent in the second quarter.

Many retailers have had to shutter stores on key year-end shopping days as protests originally against fuel-tax hikes turned violent in November and December.

The protests quickly snowballed into a broader movement against the high-cost of living, forcing President Emmanuel Macron to announce a series of measures for poor workers and pensioners.

Those measures, which include wage increases for the poorest workers and a tax cut for most pensioner, would boost consumer spending next year, although it was unclear now by how much, INSEE said.

Even without those measures, growth in households' real disposable income was expected to pick up at the end of the year after a cut in payroll contributions and housing tax took effect while inflation also eased.

With oil prices falling, inflation was expected to gradually ease from a peak of 2.2 percent in the third quarter to only 1.0 percent by mid-2019.

(REUTERS)

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