In the coming months, France’s economy will continue to outperform the rest of the euro area, especially Germany. We expect growth to reach 1.2% in 2019 versus 1.3% according to the latest update of the Bank of France. This positive trend is mostly due to four factors: strong inflow of credit, less international exposition, fiscal stimulus, and better household confidence.
Credit remains a key driver fueling the economy, like in previous years.
The 3-month moving average of bank loan growth is close to its post-crisis high, at 5.3% YoY in May. Looking at the flow of new credit, which leads the real economy by 9 to 12 months and is therefore an important leading indicator of GDP growth, the picture is also bright. Based on our proprietary model, the flow of new credit reached 1.32% of GDP in Q1 2019, which is way above the average of the eurozone, at 0.47%, and higher than Germany which stood at 0.41%. As we can see in the chart below, the impulse of new credit is highly correlated with the INSEE business survey, which is itself one of the most reliable leading indicators of the French GDP (R^0.90). The survey is well-oriented, moving upwards at 105.9 in Q2 2019, confirming our positive macroeconomic view for the French economy in the short and medium-term.