Market Outlook - BNP PARIBAS - Investment Services India

France: Roaring Consumption
• Retail sales rocketed in Q4, partly driven by
auto sales, with the surge pushing PCE higher.
• However, the positive impact on Q4 GDP will
be mitigated by higher imports. Moreover, these
factors should unwind in Q1.
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Chart 1: Retail sales vs. PCE (3m % change)
Retail Sales of Manuf.
Goods (% q/q, RHS)
Ex Autos Total
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3
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French retail sales of manufactured goods rose 2.1%
m/m in December (way above the consensus of a
0.6% rise). This pushed the y/y change up to 5.9%,
the highest level since July 2007. More importantly,
the quarterly gain reached 3.0% q/q (12.7%
annualised) – the strongest gain since Q3 1999,
when a previous car purchase incentive ended.
New car sales…and other stuff
As widely expected, the main driver was car sales
(up 9.1% m/m and 31.8% y/y) as households rushed
to benefit from the full amount of the car purchase
incentive and the bonus for low carbon-emitting cars.
In 2009, the car purchase scheme attracted 600k
clients for a direct cost of EUR 0.6bn; this was
probably entirely covered by extra VAT receipts (with
c. 300k to 400k additional new car sales and 200k to
300k being opportunistic buying). However,
consumption of other goods was also strong.
Sales of clothes and shoes also did very well, up
2.0% m/m, favoured by cold weather and solid
Christmas trading. Other items also printed gains on
the month, as the car sales boom had little adverse
impact on the sales of other items. Ex-auto sales
rose 1.5% q/q in Q4. Car sales have been primarily
financed by a decline in savings or via bank loans
(see France: Misleading Credit Data, Market Mover,
15 January 2010). The rise in the savings ratio to
17% in Q3 (the second-highest quarterly figure since
1983) was partly due to tax cuts and should suffer a
massive correction in Q4.
Mitigated impact on GDP
A 3.0% jump for manufactured goods sales is usually
consistent with a 1.2-1.5% q/q increase for total
personal consumption expenditure (as defined in
GDP, Chart 1). However, car sales were driven up by
specific factors, so consumption of other services is
more likely to replicate the pattern of ex-auto sales.
The PCE gain consistent with a 1.5% q/q retail sales
rise is thus likely to be in the 0.6% to 0.9% range,
according to the long-term historical relationship; our
forecast is +0.8%.
This will of course push GDP higher in Q4, but part of
this contribution to GDP will result in further auto
inventory decline (although the contraction of
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PCE (% q/q)
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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
05 06 07 08 09
Sources: INSEE, Reuters EcoWin Pro
Chart 2: Trade Balance - Cars (EUR bn/month)
11.5
11.0
10.5
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9.5
9.0
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8.0
7.5
7.0
01 02 03 04 05 06 07 08 09
Source: Reuters EcoWin Pro
Imports
Exports
inventories of other items should slow in Q4) and an
increase in imports. The trade deficit for the first two
months of Q4 jumped to EUR 4.8bn per month vs. a
EUR 2.5bn average monthly deficit in Q3. Car
imports soared (Chart 2), with most new cars bought
under the incentive programme small cars which are
most often produced outside France (except
Toyotas). We thus forecast GDP growth of 0.6% q/q
in Q4, with a strong negative contribution from net
exports.
Since the jump of car sales will progressively unwind
over the next three months, the reverse impact is
likely to arise in Q1. Already, anecdotal evidence
points to a decline in seasonal sales vs. last year, not
only because of heavy snow. We expect a
contraction of retail sales ex-autos as early as
January (and new car registrations due for release
on 1 February are also likely to decline). While net
exports should recover, we expect a negative PCE
figure in Q1, cutting GDP growth to 0.4%.
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Dominique Barbet 29 January 2010
Market Mover
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