Finance minister stands by French growth rate

30th November 2004, Comments 0 comments

PARIS, Nov 30 (AFP) - Finance Minister Herve Gaymard started his new job Tuesday confronted by three reports signalling worrisome weakness in the French economy.

PARIS, Nov 30 (AFP) - Finance Minister Herve Gaymard started his new job Tuesday confronted by three reports signalling worrisome weakness in the French economy.

The national statistics bureau INSEE said its index of business confidence in November fell to a reading of 105 from 107 in October while household sentiment dropped sharply to minus 23 from minus 19.

At the same time the country's persistently high jobless rate was unchanged at 9.9 percent of the workforce in October from September.

The reports came as Gaymard took the reins of the economy and finance ministry from Nicholas Sarkozy, who resigned to become head of the right-wing Union for Popular Majority party and is expected to be a presidential candidate in 2007.

Gaymard insisted in his first comments as finance minister that official targets for French growth of 2.5 percent this year and 2.0 percent in 2005 remained credible.

The OECD also forecast gross domestic product growth of 2.0 percent for next year.

The OECD's 2004 estimate was in line with the view of many economists, who say the official 2.5 percent figure is too high following weak third-quarter growth data.

Gaymard nonetheless said he considered the two targets for this year and next to be "credible" without offering further comment.

e also stood by a target set by Sarkozy to reduce the French public deficit to 2.9 percent of output next year, within the eurozone limit of 3.0 percent, as Sarkozy had promised.

But he cautioned: "Public money must be managed properly. The figure of 3.0 percent is not a sacred cow, but it is very, very, very important. We absolutely must reduce our deficits."

Gaymard said the government intended to continue reducing taxes, as well as social and employment charges on businesses, and to curtail state spending.

Repeating a line taken by the French government in recent months insisting on the need to help organise the creation of big industrial groups in Europe, Gaymard said: "We have to have an extremely ambitious industrial policy, to support or to build European champions in the industrial field."

Private economists however are far from sanguine about France's near-term prospects.

"The future does not bode particularly well," said Marc Touati, an analyst with Natexis Banques Populaires, noting that while French households will continue to consume they will do so "but in small steps."

Other analysts point to higher commodity prices, notably those for oil, which have increased inflation worries on the part of businesses and consumers.

"The increase in oil prices prompts households to raise their expectations for recent and near-term inflation," said Jean-Marc Lucas of the bank BNP Paribas.

Touati said the weakening in French business sector sentiment reflected "a general collapse in production prospects, which went from plus 23 to six."

"The last time there was such a slide was in April 2001 and before that in November 1976."

Experts have also noted that such a trend, partially attributable to a surging euro against the dollar, is apparent as well in Germany, the largest eurozone economy, and in Italy.

Emmanuel Ferry of Exane BNP Paribas warned meanwhile that the latest data from INSEE points to a "relatively mediocre" first half next year for France.

Laure Maillard, an economist at Ixis CIB said that while the October unemployment report was "slightly better than expected" when considering the number of jobs lost, the unemployment rate had not budged, meaning "one can still say that the recovery observed in France is a jobless one." The inability of the economy to create jobs reflects caution from employers still intent on reducing debt and external constraints such as oil prices and euro appreciation, she said.


Subject: French News

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