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The euro zone is out of recession but not out of trouble. Solid German industrial expansion is again shouldering the economic burden, but the surprise was France, which appeared to turn a corner with a half percentage point gain in GDP in the second quarter. The French are spending again; the question is whether the shopping spree is a prelude to investment or a last hurrah before the big belt tightening.
After a year and a half of contraction you might think that signs of euro zone growth would be celebrated, but the markets are not convinced that this is the end of austerity. These are pockets of growth – not a full-scale rebound. Greece, Italy and Spain are sinking and the Netherlands is still mired in recession. Austria and Belgium are more or less flat-lining. With a 0.7 per cent gain in output in the second quarter, Germany is doing the heavy lifting.
And then there is the puzzle of France. Over the weekend, French political pundits accused Pierre Moscovici, the economy minister, of massaging down the government's forecast of a modest return to growth to 0.1 per cent this year. In the event, he was jubilant over today's numbers, perhaps suggesting that ministers were as surprised as everyone else by the outcome. It is therefore worth having a closer look to see what makes up the 0.5 per cent gain in French output. The answer seems to be a surge in household spending, which is up by 0.4 per cent after two quarters of penny-pinching by consumers nervous for their jobs. A great deal of that extra consumption is accounted for by essential spending on fuel due to this year's harsh and exceptionally long European winter. Expenditure on clothing and food shrank again but, interestingly, spending on cars picked up for the first time in 18 months and the French are eating more in restaurants, a sign of renewed confidence or perhaps just relief from the boredom of recession. The signal from French hoteliers in July was not good – spending was down on the previous year and the French holiday industry was struggling to compete with cut-price offerings elsewhere in the Mediterranean.
These are contradictory signals which may signal the beginnings of a rebound or just bumps on the bottom. Official French car registrations fell 8 per cent in June against the same month in 2012, perhaps in indication that the market has reached essential levels of necessary replacement. Like many Europeans, the French have suffered several years of falling real disposable income. If they are spending more, it is because they have to, and the cash may be sourced from savings. The French are big savers, putting away as much as 15 per cent of income and some economists were today wondering whether the boost in household spending is temporary, or a signal of a shift to a lower savings ratio.
Either way, it is not a route to sustainable growth until French businesses begin to invest and hire again and today's quarterly statistics show investment continues to shrink, albeit at a lower rate. President François Hollande would be foolish to read too much into this consumer spurt. Instead, he should listen more closely to what French businesses are saying. Many are voting with their feet: Les Echos, the French newspaper, reports figures from the Franco-Swiss Chamber of Commerce that 850 French firms had set up shop in Switzerland, an increase of a hundred over 2011. It's a steady flow of investment rather than a panicky flood but it is an indication that business life is a good deal easier on the Swiss side of the Alps, where the taxes on employing staff are half the rates in France. These French firms are not abandoning head offices in Paris, just gradually moving the key personnel across a frontier to Geneva, where the spoken language is still French but the fiscal language is anything but.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights .
Carl Mortished