Analysis: economy brightens ahead of election

30th March 2007, Comments 0 comments

PARIS, March 30, 2007 (AFP) - The French economy is showing signs of vitality on several fronts, but analysts were nevertheless cautious to gloomy on Friday, three weeks before a presidential election.

PARIS, March 30, 2007 (AFP) - The French economy is showing signs of vitality on several fronts, but analysts were nevertheless cautious to gloomy on Friday, three weeks before a presidential election.

official figures amounting to the last pre-election snapshot of the economy gave a broadly positive picture in which growth, unemployment, prices, purchasing power and the burden of past borrowing are central features.

The economy grew by 2.1 percent last year, the INSEE statistics institute said, revising upwards an earlier estimate of 2.0 percent after 1.2 percent in 2005 and 2.0 percent in 2004.

But this still leaves France below the eurozone average growth rate of 2.6 percent, and is at the bottom of the government's forecast range of 2.0-2.5 percent.

Economist Marc Touati at forecasting body ACDE said the figures "should not make us forget that the French economy remains today very fragile" and in terms of growth, ranking 10th of the 12 countries in the eurozone in 2006.

He also warned that the main force behind French growth, household consumption, would grow by only 2.0 percent this year, putting the economy on course for growth of 1.8 percent.

Campaigning for the first round of the election on April 22 is marked by a strong sense that France is under-performing and that many of the economic and social policies of the last two the three decades have either reached their limits, or are no longer appropriate.

There is widespread agreement that they should be at least adjusted or, in the view of candidates on the right and far left, radically reformed to the point of "rupture," although the proposed remedies are also radically different.

Growth, together with controls on spending, have enabled France to reduce further its public deficit below the European Union ceiling of 3.0 percent which it breached in 2002.

The data also showed that budget overspending fell to 2.5 percent of output, below a government forecast of 2.6 percent, and the debt fell sharply from 66.2 percent in 2005 to 63.9 percent but still above the EU ceiling of 60.0 percent. The government had expected 64.6 percent.

The debt, the accumulation of past deficits, has emerged as an issue in the election, and the finance minister in the centre-right government, Thierry Breton, commented that the reduction was "the biggest achieved in France for 30 years."

In January, the EU dropped action against France for running an excessive deficit because it had fallen below 3.0 percent in 2005.

There is a strong perception among the electorate that inflation is rising and that spending power has fallen.

But inflation fell to a seven-year low point of 1.0 percent in February owing to a fall in oil prices, and growth of real incomes doubled in 2006 to 2.8 percent from 1.3 percent in 2005.

However, the percentage of gross domestic product taken by all forms of tax rose to 44.4 percent last year from 43.8 percent in 2005.

Growth has been persistently underpinned by strong consumer spending, much of it financed from savings, although the latest data for 2006 also showed a belated acceleration of investment.

Household confidence firmed slightly in March to minus 22 from minus 23 in February, data from the statistics institute INSEE showed. But at forecasting institute Xerfi, economist Alexander Law said that this was "scarcely euphoric."

At the Asteres institute, Nicolas Bouzou commented that "household confidence remains low" even though "buying power rose by 2.8 percent in 2006, mainly because of a fall in inflation."

The reduction of debt had been achieved largely through cash management and the sale of property. To contain and reduce the deficit further, "there will be no avoiding a structural reform of the state," he said.

On Thursday, INSEE reported a 1.0-percent fall in unemployment in February, reducing the rate by 0.1 percent to 8.4 percent, the lowest figure since June 1983.

Persistently high unemployment has long been a hot political issue in France. But in the last year it has fallen steadily amid much controversy over  measures taken and how the statistics are calculated.

A deficit in the trade balance increased by 7.1 percent last year, holding growth back by 0.4 percentage points. The worsening trade deficit has led analysts to warn that France is becoming structurally uncompetitive.

Copyright AFP

Subject: French news

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