Economists are wrong to believe a 331-metre-long cruise ship was mainly responsible for dragging the French economy out of its recent rut in the three months to June, according to the country’s statistics office.
The delivery of the MSC Euribia from the Chantiers de l’Atlantique shipyard on France’s west coast in May led to a surge in the country’s exports. Many economists assumed this was the main reason for France’s stronger than forecast quarterly gross domestic product growth of 0.5 per cent, which gave the overall eurozone a much-needed uplift.
However, the national statistics office Insee told the Financial Times the boost to exports on delivery of the €1bn-plus ship was almost totally wiped out by a corresponding reduction of its value from French inventories, as is standard practice in such cases.
“The contribution to GDP from this activity goes through production, which is recorded gradually over the duration of the project — about two years — and contributes to a gradual increase in inventories,” Insee said. “On delivery to the shipowner, there is an export and a decrease in stock.”
The high value of the cruise ship — estimated by Insee to be worth more than 0.2 percentage points of quarterly French GDP — helped lift the country’s exports of transport equipment 11.2 per cent from the previous three months.
This contributed to quarterly growth in French exports of 2.6 per cent and prompted several economists to cite the cruise ship delivery as the main reason why the eurozone’s second-largest economy had exceeded the quarterly growth rate of 0.1 per cent they had forecast, when the figures were published by Insee late last month.
“On our reading of the data, French GDP was indeed somewhat boosted by transport equipment exports,” Mariana Monteiro, an economist at France’s biggest bank BNP Paribas, told the FT this week.
“As well as the cruise ship, there was also some contribution from a recovery in Airbus exports,” Monteiro said, estimating that these combined added about 0.3 to 0.4 percentage points to French quarterly GDP growth. She said cruise ship deliveries were “erratic” so would not provide “a sustained boost” to GDP even if more were due in coming years.
Jim Reid, a research strategist at Deutsche Bank, said in a note to clients that French GDP numbers were “distorted by the delivery of a cruise ship”.
Claus Vistesen, an economist at research group Pantheon Macroeconomics, said he had discussed the issue with Insee and he still thought it was “a pretty straightforward case of a one-off rise in exports adding a boost to GDP growth, holding other things equal”.
Net foreign trade added 0.7 percentage points to French GDP in the most recent quarter, but a drop in inventories deducted only 0.1 percentage points. Vistesen said this was “a big surprise” because “falling inventories didn’t offset the rise in net goods trade”, adding that “Insee is hoisted on its own petard here”.
But Insee said the impact of deducting the MSC Euribia from inventories was partially masked by a surge in coking and refining stocks after these rebounded following strikes earlier in the year.
Some economists have changed their minds about the cruise ship’s impact, such as Jack Allen-Reynolds at the consultants Capital Economics. He initially wrote that the rebound of the whole eurozone — with quarterly growth of 0.3 per cent after six months of near stagnation — was “largely due to a huge increase in Ireland’s GDP and the export of a cruise ship from France”.
But he told the FT that, after looking into this further, he concluded the MSC Euribia’s contribution to GDP “will have been much smaller than the impact on France’s gross exports” because of its offsetting deduction from inventories.
He said this made France’s latest quarterly economic expansion of 0.5 per cent — up from two consecutive quarters of 0.1 per cent growth — “all the more surprising”.
Source: Economy - ft.com
