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French resurrection leaves investors hopeful

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Seeing as the ailing French economy has brought property growth down in the third quarter, it is hoped that optimistic predictions for 2007 will reinvigorate a market that is so closely tied with many Brits' retirement plans abroad.

As has been well-documented, France recorded zero overall growth in the third quarter, down from a strong 1.2 per cent in the spring, according to EU statistics agency Eurostat.

This has had a serious impact on the country's housing market: property prices grew by 8.9 per cent in the third quarter of this year, considerably down from the 15.5 per cent growth recorded last year by the Knight Frank Global House Price Index.

This fall in house price inflation has caused France to suffer the fate of dropping six places to 14th in the global property expert's country ranking table. However, it is not to be scorned at that this apparently disappointing performance is still comfortably above the UK property market, which currently lies down in 16th position.

The question on many investors' lips must then be: if French property can achieve such price increases (0.2 per cent higher than the UK's supposedly booming market) set against a backdrop of zero per cent GDP growth, then what will the returns be once the economy is reignited?

And there are signs that this may be happening in the long term. In a report published today (November 28th) by the Organisation of Economic Co-operation and Development, France's GDP growth is expected to pick up to 2.2 per cent by the end of next year before accelerating to 2.3 per cent in 2008.

Much of this growth is down to high levels of exports of goods and services – up by 4.5 percentage points in 2006 on the year before – and stable low levels of consumption, both from private individuals and the government.

The OECD report stated: "The French economy is likely to recover and continue growing slightly faster than potential over the forecast period."

It continued: "Sustained by firmer activity, employment growth should gain strength, and the fall in unemployment should continue, albeit at a slower pace than in 2006."

Furthermore, it said that the government deficit "is expected to diminish in 2006" and predicted that if the French leaders could reduce public finances' structural deficits to tackle the problem of an ageing population, this GDP growth could pick up even further.

Property investors across the channel will be hoping that if house prices suffer a fall in growth due to a flagging economy, conversely they should accelerate in times when strong fundamentals dominate the economic outlook over the longer term.

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