French growth goes negative in second quarter

France's economy contracted by 0.1 percent in the second quarter, the Insee statistics agency said Friday, revising an initial estimate of zero growth.

The revision, which shows both consumers and businesses held back spending in April through June, will be unwelcome news for the government as it puts together its 2017 budget and as campaigning in the French presidential election gets under way.

The French government on Tuesday said it was sticking to its forecasts of 1.5 percent growth this year and next, which are key for its tax and spending plans as well as honouring the promise to Brussels to bring the public deficit back under the EU-limit of 3.0 percent of gross domestic product (GDP).

The French economy grew by 0.7 percent in the first three months of the year. 

Economists have been sceptical of the government's growth forecast, although Finance Minister Michel Sapin said on Tuesday that domestic factors supporting growth had been "more vigorous than expected" since the beginning of the year and were set to continue.

However Insee's revised data released Friday showed households trimmed spending by 0.1 percent in the second quarter, after having spent 1.1 percent more in the first quarter.

Investment by businesses fell 0.2 percent after a 1.3 percent rise in the first quarter.

"Taking into consideration public spending, overall domestic demand (excluding stocks) provided no contribution to GDP growth in the second quarter of 2016," said Insee, noting it had provided a 0.9 percent boost at the start of the year.

A source at the finance ministry told AFP that the downward revision "does not call into question the scenario of 1.5 percent growth for this year and next" as GDP growth in the first two quarters still corresponds to 1.1 percent annual growth.

The French economy appears set to post slight growth in the third quarter, with the Banque de France saying earlier this month it expects a 0.3 percent expansion.

Insee said the downward revision was due to added data plus changes to how it corrects for seasonal factors to be able to compare quarterly figures.