France joins Germany in economic slide

12th November 2004, Comments 0 comments

PARIS, Nov 12 (AFP) - Prospects for a vibrant eurozone economic recovery took a hammering Friday as France joined Germany in reporting flagging momentum and the EU commission trimmed its growth forecast.

PARIS, Nov 12 (AFP) - Prospects for a vibrant eurozone economic recovery took a hammering Friday as France joined Germany in reporting flagging momentum and the EU commission trimmed its growth forecast.

French gross domestic product grew by just 0.1 percent in the third quarter from the second, well below an estimation of 0.5 percent, figures released by the national statistics institute INSEE showed.

Analysts polled by AFP's financial news subsidiary AFX News had forecast third-quarter GDP growth of 0.4 percent.

INSEE also trimmed 0.1 percentage point off its earlier figures for growth in the first and second quarters of 2004 to 0.7 and 0.6 percent respectively.

The institute said that "acquired growth" so far this year was now 2.0 percent, which meant it was unlikely the economy would meet the government's 2004 target of 2.5 percent or INSEE's own estimate in October of 2.4 percent.

The French figures followed a report Thursday that Germany, the largest economy in the 12-nation eurozone, also posted growth of just 0.1 percent in the third quarter.

In Brussels the European Union statistics agency Eurostat in a preliminary estimate said the eurozone economy expanded a mere 0.3 percent in the third quarter, the third stage in a steady slide this year from 0.5 percent in the second quarter and 0.7 percent in the first.

The EU commission meanwhile lowered its eurozone forecast for the final three months of this year and first quarter 2005 to a range of 0.2-0.6 percent from 0.3-0.7 percent.

"After the disconcerting slump in German gross domestic product, the unpleasant surprise (after encouraging growth earlier in the year) is spreading throughout Europe," analyst Marc Touati of Natexis Banques Populaires said.

For France the third quarter performance was its worst in a year while in the Germany the growth pace was the slowest since second quarter 2003.

But Michel Devilliers, a senior INSEE researcher, maintained that the third quarter French performance amounted to a "hiccup," attributable to a sharp fall in automobile output, poor results from the hotel-restaurant sector and weaker foreign trade results.

"The recovery phase has not been broken," he said. "All the current signs suggest that the fourth quarter is not bad."

The German federal statistics office attributed the paltry performance to a decline in exports in response to a slowdown in global activity.

But many eurozone leaders now worry that a rising euro against the dollar will make eurozone exports more expensive for overseas buyers and therefore less competitive, threatening to cut further into growth.

In France analysts pointed to stagnant spending by French households which they said stemmed from a stubbornly high jobless rate.

Meanwhile, since June corporate earnings have been hurt by higher oil prices which have also reduced consumer purchasing power.

"The key to a rebound in the next few months and in 2005 remains the job market and business performance," argued Nicolas Claquin of the bank CCF.

"With an increase in the price of commodities, as well as that of the euro, business margins will be under pressure."

But Touati of Natexis Banques also insisted that the French economy need fundamental reform, "a structural policy to reduce charges (to businesses) and regulations, an increase in flexibility - notably in the labor market - and a more efficient public sector."

Under current circumstances, with only Spain enjoying strong growth, "it would be suicidal for the European Central Bank to begin a cycle of monetary tightening in 2005," added Emmanuel Ferry of brokers Exane BNP Paribas.

© AFP

Subject: French News

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