French economic growth: why is it rising without household consumption?

INSEE has published its figures for the third quarter, and they came in above expectations: French economic growth reached 0.5%, compared with the 0.3% forecast by economists.

But the breakdown reveals an imbalance.

Total production of goods and services rose by 0.8%, while business investment increased by 0.9%. Household consumption, by contrast, grew by just 0.1%.

In other words, the economy is growing while one of its traditional engines remains almost at a standstill.

What explains this gap? Why are goods and services following different trajectories? And what could these figures mean for retail at the end of the year?

Key figures for the third quarter

Key takeaways:

– +0.5% economic growth, compared with +0.3% expected by economists
– production of goods and services: +0.8%, compared with +0.3% in the previous quarter
– business investment: +0.9%
– household consumption: +0.1%
– consumption of goods: stable
– consumption of services: +0.2%

A positive surprise but an uneven one

Beating economists’ consensus forecast by two-tenths of a percentage point is significant at quarterly level.

But the composition of that growth calls for a more cautious reading.

Growth is being supported by two main components production and investment while the third, household consumption, remains almost flat.

Production recorded the sharpest acceleration, rising by 0.8% compared with 0.3% in the previous quarter. Business investment followed at +0.9%, suggesting companies are becoming more willing to invest and plan ahead.

Together, these indicators point to greater confidence on the supply side of the economy.

The question is whether demand will follow.

The paradox of an engine running slowly

This is the main point of attention in the third-quarter figures.

Household consumption has traditionally been one of the key drivers of French economic growth, yet it increased by only 0.1%.

Growth driven by production and business investment without a corresponding increase in consumption raises a question about sustainability.

Companies are producing and investing in anticipation of future demand but, for the moment, that demand is not increasing at the same pace.

This also sheds light on another important indicator: European household savings remain elevated, at around 16% of income in the euro area compared with 12% before the pandemic.

What households are not spending, they are continuing to save.

The two indicators therefore tell much the same story from different perspectives: subdued consumption on one side and persistently high savings on the other.

Goods and services are following different paths

A closer look at consumer spending adds another layer to the picture.

Consumption of goods remained flat, neither increasing nor decreasing.

Consumption of services rose by 0.2%, accounting for the slight increase in household spending overall.

This divergence is consistent with a broader shift in consumer behaviour: households are increasingly making trade-offs in favour of use, services and experiences rather than ownership.

The same logic can be seen in the success of leisure attractions and in the resilience of expenditure related to experiences and quality of life.

For retailers, whose activity remains largely dependent on the sale of physical goods, this gap is an important signal to monitor.

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What could this mean for the end of the year?

The third quarter comes immediately before one of the most important periods of the year for French retailers: the Christmas and holiday shopping season.

For many businesses, these weeks account for a significant share of annual sales.

Entering this period with goods consumption flat and overall household consumption increasing by just 0.1% leaves retailers waiting to see whether consumers will start spending again.

Two scenarios are possible.

A year-end rebound

Households that have kept spending under control throughout the year could use part of their accumulated savings during the holiday season.

Consumer spending would then experience a temporary recovery.

Continued caution

The restraint observed during the third quarter could persist into the final months of the year, preventing any significant rebound.

The difference between these two scenarios will become visible in the fourth-quarter figures.

They will help determine whether the 0.5% third-quarter growth rate marked the beginning of a broader recovery — or whether it was primarily a supply-driven episode.

Key takeaways

French economic growth reached 0.5% in the third quarter, exceeding economists’ forecast of 0.3%.

This positive surprise was driven primarily by the production of goods and services, which increased by 0.8% compared with 0.3% in the previous quarter, and by business investment, up 0.9%.

Household consumption, however, increased by only 0.1%. Spending on goods remained flat, while consumption of services rose by 0.2%.

With household consumption still subdued ahead of the crucial holiday shopping season, the sustainability of this supply-led growth will be one of the main issues to watch in the months ahead.

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