IMF cuts France 2008 growth forecast, says bank sector solid
IMF cut its forecast for French economic growth this year, but said France's banking sector remains solid
PARIS, February 21, 2008 - The IMF on Wednesday cut its forecast for
French economic growth this year, but said France's banking sector remains
solid despite market turbulence and a massive fraud at Societe Generale.
The International Monetary Fund trimmed its forecast for French 2008 growth
to 1.5 percent, compared with a forecast of 2.0 percent in October, due to the
slowdown in the global economy.
A senior source at the French finance ministry, which has forecast growth
for 2008 at around 2.0 percent after 1.9 percent in 2007, said the new
forecast was "not very rational" and even "a little schizophrenic."
The source, an advisor to the finance minister, said the IMF's figures
jarred with "the figures we are seeing elsewhere in France," notably "very
good industrial confidence, the vigour of job creation and investment which is
The IMF said in a statement that "the spike in oil prices, the rise in the
euro and weakening economic prospects in partner countries will be a drag on
Once the effects of the current global slowdown have been absorbed, French
growth is expected to pick up again to 1.9 percent in 2009 and 2.6 percent in
2010 and 2011, the IMF said.
It also said it expects France's fiscal deficit to widen to 2.8 percent of
gross domestic product this year from 2.4 percent last year, taking it close
to the EU stability pact limit of 3.0 percent.
The IMF said the turbulence in financial markets has so far had a limited
impact on the French economy and the performance of the French banking sector
remains solid, despite Societe Generale's 4.9-billion-euro
(seven-billion-dollar) losses from a rogue trading fraud.
"So far, most of the large French banks have disclosed manageable exposure
to the US subprime market," it said.
But profitability could be affected by rising risk in corporate credit, the
cooling of the housing market and generally tighter credit conditions, it said.
Alessandro Leipold, deputy director of the IMF's European department, said
full-year bank results to be reported in the coming days will provide more
information, but Wednesday's results from BNP Paribas were relatively
The IMF said the Societe Generale fraud case is a concern but is unlikely
to undermine the stability of the financial system.
If Societe Generale successfully concludes its announced recapitalisation
of 5.5 billion euros or is merged with a stronger partner, there are unlikely
to be systemic repercussions, it said.