French economy set for 1.4-percent growth: data agency

25th June 2010, Comments 0 comments

The French economy is heading for 1.4 percent growth this year, higher than the eurozone average but trailing Germany, an official estimate showed on Friday.

The switch into growth is a leap from recession of 2.5 percent last year but "would be just enough to stabilise unemployment" at the current rate of about 9.5 percent of the workforce, the official statistics office INSEE said.

The European Central Bank forecast recently that the eurozone economy would grow by 1.0 percent this year, and the German central bank put German growth at 1.9 percent.

INSEE said that in the first quarter of the year, the French economy grew by only 0.1 percent, in line with an initial estimate, but it upgraded growth in the last quarter of last year to 0.6 percent from the last estimate of 0.5 percent.

In the second quarter of the year the economy should show growth of 0.5 percent on the back of expansion in the eurozone, it said.

Recovery would then continue at "slow speed" with gross domestic product expanding by about 0.4 percent in each of the last two quarters of the year.

This would generate overall growth for the year of about 1.4 percent, in line with forecasts by most international organisations such as the European Commission, the International Monetary Fund and the Organisation for Economic Cooperation and Development.

INSEE said that household consumption, a main driver of activity in the French economy would remain weak this year.

In the first quarter, household consumption had been steady, having risen by 1.0 percent in the last three months of last year.

At consultants Xerfi, economist Alexander Law said it was not surprising that consumer spending had levelled off.

"The cash for clunkers (auto scrapping subsidy) is a mere shadow of what it was at the end of last year, unemployment continues upwards and inflation is rising little by little," he said.

Saying that these signs amounted to an alarm signal, he remarked: "The sanction is inescapable: purchasing power fell by 0.1 percent in the first quarter despite acceleration of the amount paid in wages."

Another key factor of growth, investment, fell again in the first quarter by 0.9 percent after a fall of 1.1 percent.

Overall internal demand had therefore reduced French growth by 0.2 percentage points. The boost had come from foreign trade which had added 0.4 percentage points.

"The message is clear: consumers are at the end of their strength, companies can do no more and public spending and investment is on the decline," Law said.

Public spending and investment had fallen for the third quarter in a row.

"At this rate, the recovery plan is no longer visible ... at a time when we are being promised outright cuts in spending," Law said.

"An unduly brutal switch to rigour could wipe out hopes of growth for a long while," he warned.

© 2010 AFP

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