2003 growth in France betterthan forecast, still lowest in 10 years

27th April 2004, Comments 0 comments

PARIS, April 27 (AFP) - The French economy grew by 0.5 percent last year, the lowest figure for 10 years, and rising health-care costs pushed the public finance deficit far beyond eurozone limits, official data showed Tuesday.

PARIS, April 27 (AFP) - The French economy grew by 0.5 percent last year, the lowest figure for 10 years, and rising health-care costs pushed the public finance deficit far beyond eurozone limits, official data showed Tuesday.

Nevertheless, the growth rate, calculated by the French statistics institute INSEE, was better than an initial estimate of 0.2 percent and private economists said the increase also bode well for this year's outlook.

Morgan Stanley analysts Eric Chaney and Anna Grimaldi said the "stronger momentum vindicates" their 2004 forecast of two percent growth.

Their forecast is higher than the government's official expectation of 1.7 percent but Prime Minister Jean-Pierre Raffarin and other officials have said growth could exceed this target.)

"Combined together, the impact of the global recovery and the acceleration in consumer spending in the first quarter are indeed suggesting upside risks to our already upbeat forecast. The same probably holds for the euro area as a whole", Chaney and Grimaldi said.

"Our concerns about an underestimation of fourth quarter GDP (gross domestic product) for the euro area in general and France in particular were justified," they added.

BNP Paribas economist Jean-Marc Lucas has a slightly more cautious outlook.

"A continuation of the pick-up in activity is to be expected in the first half of 2004, although at a more moderate pace than at the end of last year."

"In the first quarter of 2004, activity seems to have continued to pick up, albeit hesitantly," he added.

Referring to an improvement in a French business climate indicator for March, he said: "Companies' expectations remain fragile, however, at the mercy of exchange rate movements."

Although the 2003 increase in growth provided some hope that an economic recovery is setting in, other data from Insee showed that the improvement in activity has not yet helped the public finances.

France's public-sector deficit amounted to 4.1 percent of gross domestic product in 2003, well in excess of eurozone rules calling for a deficit no greater than three percent, but which have been repeatedly broken by France and Germany.

INSEE also reported that the public debt amounted to 63.7 percent of output last year, which was also greater than a eurozone limit of 60 percent.

The INSEE report attributed a sharp increase in the deficit to spending on social policies.

At a presentation on proposed reforms of public spending, new Finance Minister Nicolas Sarkozy said France must learn to "rein in" its public spending.

"We cannot carry on accumulating deficits and debt," Sarkozy said.

© AFP

                                                               Subject: French news

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