French economy flatlines again, outlook murky

Growth came in at zero, Tuesday's figures from national statistics agency INSEE showed, as a rise in investments and exports defied expectations for a contraction.

French economy flatlines again, outlook murky

World Bulletin / News Desk

France's economy flatlined for the third quarter running in the three months to June, but it may struggle to gather significant momentum going into 2013 given looming budget cuts and a steadily rising jobless rate.

Growth came in at zero, Tuesday's figures from national statistics agency INSEE showed, as a rise in investments and exports defied expectations for a contraction.

Finance Minister Pierre Moscovici said the figures showed France would meet the government's growth forecast of 0.3 percent this year.

"These figures are not excellent but at the same time France is not in recession while the majority of its European partners are," Moscovici told Europe 1 radio.

Figures due at 0900 GMT are expected to show the euro zone as a whole contracted in the second quarter as southern Europe remains mired in recession, though the dominant German economy grew by 0.3 percent.

Moscovici said Socialist President Francois Hollande's government was determined to deliver on its EU commitment to shrink the public sector deficit to 3 percent of GDP next year despite the fragileeconomy.

France's growth figure topped the average forecast from a Reuters poll of 35 economists for a contraction of -0.1 percent.

INSEE said household consumption, the main driver of the French economy, contracted by 0.2 percent in the second quarter, after growing 0.2 percent in the first three months of the year.

Fixed investment by business grew by 0.7 percent, which economists said was a technical rebound after a 1.4 percent contraction in the first three months. Many businesses had slowed investment ahead of presidential elections in April and May.

Restocking added 0.3 percent to growth in the second quarter, belying weakness in final demand from consumers.

Exports expanded by 0.2 percent, after a 0.1 percent rise in the first quarter, as France's southern European export markets remain weak. A surge in imports meant the trade performance overall deteriorated and was a major drain on growth.

"Looking forward, the outlook remains bleak," Joost Beaumont, senior economist at ABN Amro, said.

"Rising unemployment, fiscal consolidation, tight lending conditions and heightened uncertainty due to the euro crisis - let alone the recession in France's main trading partners - will all weigh on theeconomy," he said, forecasting a contraction in the third quarter before a modest fourth-quarter recovery.


The government needs to find 33 billion euros in new taxes and spending cuts to reach a 2012 deficit target of 3 percent, even if growth meets its target of 1.2 percent next year, which most economists think is unlikely.

Christian Parisot of Aurel BGC said that France should now avoid a recession this year but domestic demand would stay weak as government cutbacks bit.

"There is nothing dramatic - we are not in the same situation as Spain - but all the leading indicators point to a contraction in the third quarter," she said.

Figures last week showed France's trade deficit is close to record highs and industrial confidence is at its lowest for three years. While France's industrial production was flat in June, it remains 17 percent below its pre-crisis peak in 2008.

Confirming a gloomy jobs market, second-quarter non-farm payrolls figures on Tuesday showed a 0.1 percent contraction quarter on quarter.

Consumer price data for July also showed that inflation eased to 2.2 percent year-on-year on an EU harmonised basis, though energy prices were 3.6 percent higher year-on-year.

Moscovici said the government was still considering a temporary freeze on fuel prices and would announce a package of measures by the end of this month.

Economist Alain Minc, a close ally of former conservative president Nicolas Sarkozy, said France's Socialist government would be forced sooner or later to accept that high labour costs were eroding its competitiveness in world trade.

"Our problem on competitiveness is not just vis-a-vis Germany, it's also going to be increasingly a problem vis-a-vis Spain and Italy," Minc told RTL radio, adding that Madrid and Rome were introducing painful reforms but boosting their exports by 10 to 15 percent per year.

Güncelleme Tarihi: 14 Ağustos 2012, 13:21