France faces near-term 'soft growth'

22nd March 2007, Comments 0 comments

PARIS, March 22, 2007 (AFP) - France faces a stretch of "soft growth" of 0.5-0.6 percent in the first two quarters of 2007 amid sluggish worldwide momentum in response to a downturn in the US housing market, French statistics body INSEE predicted Thursday.

PARIS, March 22, 2007 (AFP) - France faces a stretch of "soft growth" of 0.5-0.6 percent in the first two quarters of 2007 amid sluggish worldwide momentum in response to a downturn in the US housing market, French statistics body INSEE predicted Thursday.

The institute, in a review of economic prospects, said that in annual terms the French economy should expand by close to 2.0 percent in the first half of the year, equalling growth in 2006.

INSEE economist Eric Dubois described the expected pace over the first two quarters as "soft growth" in a less positive international environment, reflecting concerns over the health of the US housing market.

New US home construction, which showed a surprising rebound in February, fell steadily last year as the market was buffeted by rising interest rates and slowing demand following years of spectacular growth that had unleashed a speculative frenzy in some cities.

Despite February's solid performance, stock markets remain jittery about the fate of sub-prime mortgage lenders in the United States.

A number of such lenders, who make loans to borrowers with weak credit ratings, are in difficulty because of defaults, sparking fears in some quarters that weakness in the housing sector could infect the broader US economy.

INSEE noted that growth in the world's principal industrialised countries would likely slow in the first half of the year to an annual 2.0 percent after coming close to 3.0 percent at the end of 2006.

That trend is likely to weigh on the value of French exports, which should increase at a slower rate than in late 2006 and much slower than imports.

The foreign trade sector should shave about 0.2 points off growth in the first two quarters, according to INSEE.

The expected gain in imports reflects healthy French consumer spending, powered by purchasing power advances in the face of lower taxes, tame inflation and increased employment.

Business investment should increase by 3.0 percent in the first half.

INSEE predicted economic expansion of 0.5 percent in the first quarter and 0.6 percent in the second but warned that its forecasts could be upset by a sharper-than-expected slowdown in the United States and stepped up "risk aversion" on world financial markets.

Under a more positive scenario, France could enjoy stronger momentum in the event of a growth spurt in the eurozone or a stronger-than-expected gain in consumer spending.

INSEE also said the macroeconomic impact of upcoming presidential and legislative elections in France in April and May was not perceptible.

Copyright AFP

Subject: French news

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