French economy boasts 2.3 pct growth

18th February 2005, Comments 0 comments

PARIS, Feb 18 (AFP) - France broke a two-year pattern of sluggish growth in 2004 when the economy grew by 2.3 percent and outperformed several other EU countries in the fourth quarter, but economists warned that the momentum may not last.

PARIS, Feb 18 (AFP) - France broke a two-year pattern of sluggish growth in 2004 when the economy grew by 2.3 percent and outperformed several other EU countries in the fourth quarter, but economists warned that the momentum may not last.

The national statistics institute INSEE said that after adjustment for seasonal and other variations, the economy had expanded by 0.8 percent in the fourth quarter from the third-quarter figure.

France therefore eclipsed eurozone partner Germany where fourth-quarter growth contracted by 0.2 percent and Italy where the economy contracted by 0.3 percent.

The 2004 performance was also noticeably better than output in the previous two years. The French economy grew by just 0.5 percent in 2003 and 1.1 percent in 2002.

"Everything is moving in the direction of moderate and self-maintained growth," said INSEE economist Michel Devilliers.

But he acknowledged that the economy in the early part of 2005 was growing below its potential of 2.0 to 2.5 percent.

"We don't see what will allow for an acceleration," he added.

Economists generally attributed the solid fourth-quarter showing to consumer spending, bolstered by several measures introduced by former Finance Minister Nicholas Sarkozy aimed at boosting domestic consumption.

But they questioned whether the movement could be sustained in light of stubbornly high unemployment.

Household spending rose 1.2 percent in the October to December period after falling 0.2 percent in the previous quarter.

At Natexis Banques Populaires, economist Marc Touati urged caution, if for no other reason than that the fourth-quarter growth figures "in fact only correct the stagnation in gross domestic product in the third quarter".

He said the question now was whether, after dipping into their savings and having taken on increased debt, "French households have the means to maintain the (spending) trend".

At BNP Paribas bank, economist Jean-Marc Lucas also pointed to dynamic consumer spending to explain France's fourth-quarter lead on Germany, Italy and the Netherlands.

But he stressed that France's "morose" labor market, with unemployment "barely stable" and stagnant job creation at the end of the year, "calls for caution going forward".

Emmanuel Ferry of Exane BNP Paribas said the fourth-quarter results would prompt an upward revision in his 2005 growth projection to 1.7 percent from1.4 percent.

Touati meanwhile foresaw a downward correction to momentum this year but said he was maintaining his overall 2005 forecast at 1.8 percent, which he described as "optimistic".

French President Jacques Chirac had argued earlier this year that his government, despite demands to curb public spending imposed by eurozone regulations, had nonetheless been correct in opting for an expansionist approach.

"We did the right thing in resisting pressure from those who recommended an excessively restrictive budget policy when we were rather at the bottom of the wave because growth was inadequate," he said.

France has narrowly escaped tough procedures by the European Commission for breaching a key eurozone rule that a country's public deficit must not exceed 3.0 percent of output.

But the government nonetheless remains under strong pressure to deal with the underlying causes of structural deficits.

© AFP

Subject: French News

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