French economy shrank in first quarter as inflation unnerves consumers

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France’s economy shrank unexpectedly in the first quarter as consumers struggled to cope with surging inflation, official data showed on Tuesday, putting pressure on President Emmanuel Macron heading into legislative elections this month.

The INSEE statistics agency said the euro zone’s second-biggest economy contracted 0.2% in the three months through March from the previous quarter. It had previously estimated gross domestic product flatlined during that period.

A breakdown of the data showed consumer spending was weaker than previously estimated, falling 1.5% instead of the earlier 1.3% reading, as households reined in spending on new cars and hotels.

While an outbreak of the Omicron variant of COVID-19 weighed on activity at the start of the year, a surge in consumer price inflation – which INSEE said hit a record 5.8% in May – has dampened household spending.

In the latest sign that inflation is unnerving consumers, INSEE said households cut their spending in April by 0.4%, whereas economists polled by Reuters had forecast on average an increase of 0.8%.

via Reuter

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