Finance ministry concedes, lowers 2005 growth forecast

31st August 2005, Comments 0 comments

PARIS, Aug 31 (AFP) - The French government has lowered its 2005 economic growth forecast to between 1.5 and two percent, Finance Minister Thierry Breton said in a radio interview Wednesday.

PARIS, Aug 31 (AFP) - The French government has lowered its 2005 economic growth forecast to between 1.5 and two percent, Finance Minister Thierry Breton said in a radio interview Wednesday.

It was the first time that a government minister had mentioned 1.5 percent as the lower end of the annual forecast. The previous target had been two percent.

"Our objective is between 1.5 and two percent," Breton told Europe 1 radio. "I said the ceiling was two percent and we are working as hard as we can. It's true that it's difficult but we are clearly between 1.5 and two percent.

"I say again: the worst is behind us," Breton said, pointing to increased hiring by businesses and a pickup in economic momentum since the end of May and the start of June.

"Industrial orders are increasing, exports are much better than they had been ... and prospects have clearly been positive since July," said Breton.

Breton hailed as "good news" a report from the labor ministry late Tuesday that the country's unemployment rate had fallen below the symbolic 10 percent barrier, declining from 10.1 percent in June to 9.9 percent of the work force in July.

But he acknowledged that the struggle against unemployment was "a long-term priority", noting that France's jobless rate was still above the eurozone average.

There were 25,600 fewer job seekers in July after reductions of 0.1 percent in April, 0.1 percent in May and 1.4 percent in June.

France now officially counts 2,423,300 jobless people.

The jobless rate had gone above the 10 percent threshold in October 2003, the ministry noted.

Analysts were quick to point out that the July trend did not result from improved growth, a meagre 0.1 percent in gross domestic product during the second quarter from the first, but rather from exceptional factors.

Among these, according to economist Marc Touati at Natexis Banques Populaires, were recent administrative changes to the jobless calculations, the uptick in part-time summer jobs and the first impacts of Labor Minister Jean-Louis Borloo's plan to provide financial aid to companies offering temporary apprentice contracts.

"The problem is that once these summer jobs and/or the apprentice periods are over, what happens?" Touati said.

Other analysts agreed that growth was still too weak to support any sustained decline of the unemployment rate.

"Over the long term, it seems unemployment does not fall steadily when GDP growth is near the levels seen recently," said Jean-Marc Lucas, an economist at BNP Paribas, adding that annualized GDP growth in France was just 1.3 percent in the second quarter.

Furthermore, an increase in oil prices, expected to prove durable, is likely to prompt employers to keep looking for ways to raise productivity in case of a business upswing as opposed to hiring new workers.

"Companies are still more focused on productivity investments, which will inevitably hold up any employment recovery," said Emmanuel Ferry, economist at Exane BNP Paribas, a brokerage in Paris, adding that the latest data "in no way translates into a reversal of the trend".

"If employment fell in 2004, when growth was 2.1 percent, it's not going to take off with growth of 1.5 percent this year," added Touati at Natexis.

Copyright AFP

Subject: French news, French economy, Thierry Breton, economic growth, unemployment

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