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have been far less dynamic than sales of goods, and
the impact of weather will generally have been
adverse with the notable exception of winter sport
resorts. We forecast private consumption to rise by
0.5% q/q, with strong import content and the risk of a
slight decline in Q1. We see the sharp decline in
household confidence in December, largely due to
higher prices for food and energy, as the main
source of concern for PCE growth this year.
What do the hard data have to say?
Manufacturing output, after easing 0.2% m/m in
September, fell 0.9% in October because of industrial
action. Despite this poor start to the quarter, the
November rebound, +2.2% m/m, almost guarantees
a rise for Q4. If we assume manufacturing activity
was unchanged in December, total output would be
up 0.5% q/q. This is consistent with 0.5% q/q GDP
growth (Chart 3). Turning to overall industrial
production, the picture became more favourable
each month from September to December. The cold
weather probably caused a further increase in energy
output in December. We forecast IP up 0.2% m/m in
December and up 0.9% q/q in Q4.
Assuming exports and imports were unchanged m/m
in December, exports would rise by 1.1% q/q in Q4
while imports would ease by 0.3%, according to
customs data. This suggests a positive contribution
of foreign trade to growth. However, in Q3, a similar
gap between exports (+6.7% q/q) and imports
(+5.4%) was associated with a negative foreign trade
contribution of 0.5pp. For the last quarter of 2010, we
expect net exports to have made a milder negative
contribution to growth.
Q4 growth in line with recent trend
The Banque de France model repeatedly (i.e. in each
of the three monthly estimates) showed that GDP
growth should reach 0.6% q/q. However, this is a
purely mathematical forecast. The INSEE forecast is
corrected for unusual factors and gives a 0.5%
prognosis. Based on our analysis, which takes into
account the icy weather that may subtract 0.1pp from
growth as well as robust private consumption, we
forecast growth of 0.4% q/q and 1.5% y/y. This would
leave full-year growth at 1.5%, just 0.1pp below the
government’s forecast, unless back data are revised
again (they were lowered in late December).
Keeping an eye on the budget deficit
Q4 growth of 0.4% would leave the acquired growth 1
rate for 2011 at 0.6%, exactly the same as a year
earlier (i.e. acquired 2010 growth as of end-Q4
2009). More importantly, the decline in December
PMIs and household confidence are a clear threat to
Box 1: Snowy Christmas
Heavy snow and a period of very cold weather started in
late November and lasted until the last week of the year.
There is no indication that industrial activity was hit, and
the only impact should be positive in the form of
increased energy output, as households cranked up the
central heating. Of course, snow and icy temperatures
affect construction, but building and construction is only
6.1% of total value-added and this adverse weather is
partly corrected for by seasonal adjustment.
The biggest impact was on services, transport, retail and
leisure, though it is very difficult to measure. In the
transport business, many trains were delayed and some
cancelled, but the impact on activity was limited. Air
France-KLM, the number one carrier in France, said it lost
some EUR 70mn (part of which it may be able to claim
back from airport operators), which is equivalent to only
0.01% of one day’s GDP (the company also reported a
2% increase in passengers vs. December 2009). The
road chaos has been temporary, and merchandise losses
marginal. However, some people may have cancelled
trips planned for Christmas because of adverse weather
conditions. The bottom line is that tourism, leisure,
restaurants and retail sales of food and gifts may have
been the most affected segments. Contrary to most other
economic disruptions, there are very few catch-up
possibilities for this specific weather problem (with one
exception being winter sport resorts).
Conversely, some public services have been facing
heavier workloads, which may result in marginally higher
costs, in particular for overtime (thus output, since the
production of non-merchandise public services is
estimated through their costs). That applies to road
security and safety and for health services, with more
people falling and being hurt.
While it may be noticeable for businesses such as toy
stores, restaurants and airlines, the impact should not be
material in December industrial production or Q4 GDP.
The likely exception is construction, which may subtract
0.1pp from GDP growth in the quarter.
Source: BNP Paribas
Q1 growth. If confirmed, these developments will
also be a challenge for the government’s 2011
growth forecast of 2.0%. However, cautious
assumptions regarding fiscal income’s relationship
with GDP growth should allow the 2011 deficit target
to be reached even in the event of some
disappointment on the growth front.
When the central budget deficit for the first eleven
months of 2010 was published this week, the Ministry
of Finance suggested that the 2010 full-year deficit
could be a little below its previous forecast. This is
also an element that will help achievement of the
2011 target.
1 Acquired growth is the full-year growth that would be
obtained assuming every future quarter is flat q/q.
Dominique Barbet 13 January 2011
Market Mover
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