Chirac's government basks in economic sunshine

28th July 2006, Comments 0 comments

PARIS, July 28, 2006 (AFP) - The French government was basking on Friday in a harvest of good monthly economic data and further cuts into unemployment as activity slows for summer holidays.

PARIS, July 28, 2006 (AFP) - The French government was basking on Friday in a harvest of good monthly economic data and further cuts into unemployment as activity slows for summer holidays.

But economists remain cautious, clinging to their forecasting umbrellas in case economic clouds regain the skies, saying a fall in unemployment was not driven by dynamics in the private sector and that household confidence remained fragile.

However, the official figures, on unemployment, consumption, confidence and inflation have surprised economists, step by step, as they were announced.

Industrial production data for May show an unexpectedly big rise of two percent on a 12-month comparison, the biggest rise since 2000.

Inflation in June was zero on a monthly basis, giving 12-month inflation of 1.9 percent. This was less than economists had expected against a background of high oil and raw materials prices.

The trade balance is heavily in deficit, but data for May showed that the deficit had been reduced by about EUR 200 million from the April figure to 1.8 billion euros.

Industrial confidence recovered in July: economists had expected it to be flat. And household confidence rose. Household consumption surged by 1.17 percent in June. Economists had expected an increase of 0.4 percent.

Meanwhile on the Paris stock market the leading CAC 40 index is flirting with 5,000 points for the first time since May on a string of unexpectedly strong company results.

Tax revenues are strong, much to the delight of the finance ministry which is determined to make inroads into France's heavy public deficit and debt.

But the figure likely to have most impact on public confidence and the political landscape, with a presidential election looming next year, is a continuing fall in unemployment, to a rate of nine percent in June, a fall of 0.1 percentage points in the month and the lowest figure since April 2002.

The number of people unemployed is 2.186 million. In 12 months, the rate has fallen by about one percentage point or by one percent to about the rate when the current government came to power in 2002.

This has encouraged Employment Minister Jean-Louis Borloo to suggest the unemployment rate might even approach 7.0 percent in three to four years' time, saying that at last France is cutting into the three percentage points difference separating France from some better performing EU countries.

Borloo is also minister for social affairs and has launched many programmes to tackle deprivation, and also stimulate employment.

The rate has been falling since March 2005 when it was 10.2 percent.

For about 25 years unemployment has been a recalcitrant, and generally rising, problem in France. Many treatments have been tried, from early retirement schemes to jobs programmes for young people in the state sector, and a reduction of the working week to 35 hours, and now penalties on companies resorting to early retirement.

In 1994 the rate reached 12.3 percent and it was at 11 percent or more for most of the 1990s.

Unemployment rates of about 20 percent among the urban poor and immigrant populations were considered a central factor in urban rioting at the end of last year.

The current centre-right coalition government has adjusted policies following severe local election setbacks, tightening unemployment claims controls and relaxing some hiring rules, although it had to drop one such scheme a few months ago under massive objections by trades unions and students.

Economists are cautious however. At Xerfi finance house, analyst Nicolas Bouzou said there was little sign of big job creation in the private sector and that the fall of unemployment was being driven mainly by subsidised jobs in the public sector. Another factor was a high rate of retirement, and a low number of people reaching working age. Meanwhile household confidence remained rather low.

At BNP Paribas, analyst Mathieu Kaiser agreed with these broad comments on the unemployment figures and said that although households were increasingly confident that unemployment was falling, they remained wary.

Copyright AFP

Subject: French news

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