French GDP slides in Q3, deepening the ECB's growth worries

• France's preliminary gross domestic product for Q3 was -0.1% on the quarter, against an expected +0.1%.
• The prior quarter had been flat at 0.0%.
• On a year-on-year basis, the expected increase for preliminary Q3 GDP was +0.3%.
• The previous year-on-year reading was +0.5%.

That is a painful miss, as French GDP shrank in the third quarter. It follows the flat second quarter and a 0.2% decline in the first, hardly the kind of performance anyone would want from Europe's second-largest economy.

Breaking down the data, household consumption did pick up, rising to 0.4% from 0.2% previously. Investment, though, remained a significant problem, falling 0.6% after a 0.5% drop in the preceding quarter.

Exports were the largest drag, sliding 1.7% and wiping out the prior quarter's 2.8% advance. As a result, net trade took 0.6% away from growth, while inventories added a 0.4% buffer and domestic demand chipped in the final 0.1%.

What implications does this hold for the ECB?

The latest data point to an economy broadly struggling, held back by weak investment and soft demand abroad. With France also dealing with serious fiscal constraints, there is little scope for government spending to offer much help.

For the central bank, the figures do not alter much, since bond markets have already priced in much of this outlook. The French numbers will bolster the case for caution when it comes to more tightening, though policymakers will on balance remain more concerned about price stability.

If comparable weakness emerges elsewhere in the euro area, though, arguing for further rate increases will become increasingly hard as next year nears.