French growth slows as ‘yellow vest’ protests take toll

French economic growth slumped in 2018 as consumer spending tapered off toward the end of the year, the victim of violent anti-government protests that kept many shoppers at home ahead of the holidays, statistics office INSEE said Wednesday.

GDP expanded by just 1.5 percent last year after the 2.3 percent growth chalked up in the 2017 after Emmanuel Macron swept into the presidency with his pledge to revive the French economy through pro-business reforms.

The 2018 outcome fell short of the government’s growth target of 1.7 percent and economists warn of gathering risks that could jeopardise a recovery in 2019.

INSEE said consumer spending was stagnant in the fourth quarter after edging up 0.4 percent in the previous three months, as the “yellow vest” protests over high fuel taxes and low living standards sparked widespread disruption.

Dozens of shops were ransacked and cars burned in Paris and other cities during the weekly Saturday protests that erupted in mid-November.

Road blockades also kept goods and supplies from reaching stores and businesses, causing production bottlenecks and shortages.

Even a heavy reduction in residential taxes for millions of French households which came into effect in late 2018, part of Macron’s pledges to boost spending power, was not enough to entice the French to shop more.

Household spending slumped, falling 0.4 percent in the final three months of the year, INSEE said, while growth in investment by companies slowed to 2.9 percent from 4.7 percent in the third quarter.

The government, which faces increasing difficulties keeping public spending under control and the budget deficit within EU limits, tried to see the glass as half-full rather than half-empty.

“Despite the deterioration of the international environment and the yellow vest movement, French growth is solid,” Finance Minister Bruno Le Maire said on Twitter.

“Our policies are paying off,” he added.

Clouds gathering
But most of INSEE’s main readings showed a French economy facing increasing headwinds, not least the trade tensions between Europe, China and the US under the protectionist policies of President Donald Trump.

French exports rose 3.1 percent last year after a 4.7 percent jump in 2017, while industrial production gained 2.0 percent after 2.6 percent as construction and manufacturing lost steam.

Imports, a key indicator of French willingness to spend, rose just 1.1 percent last year after climbing 4.1 percent in 2017.

Looking ahead, the uncertainty surrounding Britain’s looming exit from the EU and higher oil prices could also derail the French government’s hopes of a rebound this year.

“The bottom line is that after two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” Christine Lagarde, head of the International Monetary Fund, said at the World Economic Forum in Switzerland last week.

“Does that mean that a global recession is around the corner?” she asked. “No. But the risk of a sharper decline in global growth has certainly increased.”

The IMF estimates French growth of 1.5 percent this year, below the government’s target of 1.7 percent.

Some economists say such projections may still be too optimistic.

“If oil prices keep rising, if home construction keeps slowing… and if businesses pull back on investing, French growth could plunge,” said Patrick Artus, chief economist at the investment bank Natixis.

In such a scenario, Artus says French economic growth risks falling “below one percent” for the year.