French economy on track for growth, reports OECD

30th November 2004, Comments 0 comments

PARIS, Nov 30 (AFP) - The French economy is set for growth in the next two years and unemployment should begin to fall once oil prices ease, the OECD said here Tuesday.

PARIS, Nov 30 (AFP) - The French economy is set for growth in the next two years and unemployment should begin to fall once oil prices ease, the OECD said here Tuesday.

"Having slowed in the second half of 2004, the upswing should pick up again in 2005 once the effects of oil price increases begin to wane," the OECD said in its twice yearly outlook.

The economy was forecast to expand in real terms by 3.1 percent this year, and by 2.8 and 3.1 percent in 2005 and 2006, the Organisation for Economic Cooperation and Development said.

According to the inflation-adjusted GDP deflator, the comparable figures are 1.9, 1.8 and 1.7 percent.

"Both foreign and private domestic demand remain robust so that employment growth is like to pick up during 2005 and unemployment should fall," it added.

Unemployment was forecast to ease from 9.8 percent to 9.7 and 9.2 percent from this year through 2006.

Public finances should improve slowly, though at first this would largely be the result of a major pension transaction involving the public electricity company EDF.

In general, "more comfortable company profits, the first-half (2004) upturn in investment, the likely better-than-budgeted fiscal outturn for 2004, all provide the basis for optimism that the momentum of the recovery can be resumed during 2005", the OECD said.

In addition, "France typically benefits strongly from growth in demand from many oil-exporting countries, demand which should come through during 2005 and 2006", the report noted.

"The general government deficit is likely to be lower in 2004 than planned, owing to stronger revenues generated by higher economic growth, and to an unexpected slowdown in public expenditure on health care in the third quarter."

OECD projections nonetheless suggested that "the deficit may not fall below three percent of GDP (gross domestic product) until 2006, absent further measures.

France has overshot the EU stability pact's deficit threshold of three percent since 2002.

Clouds over the rather upbeat scenario came from the chance that oil prices would remain high, that business and consumer confidence could falter, and that plans to reduce public sector employment could provoke stiff opposition.

The OECD diplomatically noted that past plans "had to be reined back in the face of implementation difficulties", which could also be read as having been scuttled by strikes.

© AFP

Subject: French News

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