French economy lurches towards recovery

29th November 2005, Comments 0 comments

PARIS, Nov 29 (AFP) - The French economy may be on track for a sustained recovery, but fragile confidence, high unemployment and government overspending dog the outlook for the second-biggest economy in the eurozone, the OECD said on Tuesday.

PARIS, Nov 29 (AFP) - The French economy may be on track for a sustained recovery, but fragile confidence, high unemployment and government overspending dog the outlook for the second-biggest economy in the eurozone, the OECD said on Tuesday.

In a report that urged caution when interpreting recent data showing robust expansion in France, the OECD predicted growth this year of 1.6 percent rising to 2.1 percent next year and 2.2 percent in 2007.

"The recovery that appears to have gained hold in the second half of the year should continue into 2006," the OECD said, citing rising domestic demand and a recovery in exports.

The OECD warned France to accelerate steps to reduce overspending but it acknowledged that policies were needed to revitalise many of France's poor urban areas where rioting broke out earlier this month.

However, it argued that much of the solution to stresses in urban areas lay in market-orientated economic reforms which would not involve extra spending. "Social unrest calls for policies to improve prospects for the excluded," the OECD said.

"Fundamental labour market reforms, including liberalising regulations that restrict job opportunities for the low skilled should be a key component."

France had reversed a trend of declining growth between the middle of 2004 and the middle of 2005, the OECD said. But the OECD qualified this interpretation by commenting that quarterly data for the last two years had been erratic.

Official data earlier this month showed that the French economy had expanded by 0.7 percent in the third quarter compared with the previous quarter, an acceleration after growth of 0.1 percent in the second quarter compared with the first.

The OECD warned that "hesitancy among consumers and investors and the weakness of net exports up to mid-2005 means that a strong recovery is not certain".

In the long-term, it also said that a fall in France's export market share "may suggest an underlying competitiveness problem in parts of the economy".

Furthermore, the OECD said that the forecast expansion in 2006 would lead to "only a small drop in unemployment", which had declined to 9.8 percent in September from 10 percent in early 2005.

France had to harden measures to reduce its public deficit, which the OECD forecast would exceed a ceiling of 3.0 percent of GDP set by the European Union in 2005.

France's centre-right government has promised to reduce its deficit to 3.0 percent this year and to 2.9 percent in 2006.

The OECD said that "the general government deficit for 2005 is likely to remain above 3.0 percent of GDP ... the deficit for 2006 is likely to be broadly unchanged," and it advised "firm measures" in the next few years to combat the problem.

Copyright AFP

Subject: French news

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