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France’s economic growth picked up in the last three months of 2016 amid signs higher inflation is beginning to weigh down on household spending power.

A final GDP reading from Insee confirmed France’s economic growth rate doubled from 0.2 per cent to 0.4 per cent in the fourth quarter in the eurozone’s second largest economy – in line with Germany after years of falling behind its major rival.

But despite the encouraging growth stats, a breakdown of the figures revealed household disposable incomes rose just 0.4 per cent in the quarter compared to 0.7 per cent in the period prior.

The slowdown in income growth was the result of higher income tax, falling social security benefits, and a faster than expected rise in inflation. Consumer spending has helped drive the French recovery in recent quarter, with household and business confidence defying pre-election jitters. Overall consumer spending rose 1.8 per cent last year.

Still, rising tax revenues have also helped boost the French government’s coffers, pushing down the country’s budget deficit from 3.8 per cent to 3.2 per cent of GDP in the quarter.

That meant the overall deficit ended the year at 3.4 per cent – above the EU’s 3 per cent ceiling – amid warnings from Brussels that any new government will need to immediately tighten its purse strings to stick to the bloc’s spending rules.

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