French economy set for surprise 2pc growth

12th May 2004, Comments 0 comments

PARIS, May 12 (AFP) - The French economy expanded 0.8 percent in the first quarter, its fastest pace in two years and a better-than-expected performance that officials said confirmed a recovery was gathering steam.

PARIS, May 12 (AFP) - The French economy expanded 0.8 percent in the first quarter, its fastest pace in two years and a better-than-expected performance that officials said confirmed a recovery was gathering steam.

"Our economy has come back toward growth," Prime Minister Jean-Pierre
Raffarin declared.

"We have forecast growth of 1.7 percent in 2004 - we will without doubt reach and surpass that."

Private economists were more cautious, however, warning that high unemployment and rising oil prices were likely to continue to weigh on
momentum.

The national statistics institute INSEE reported earlier Wednesday that growth in the January-March period came to 0.8 percent, eclipsing consensus expectations of 0.5 percent and outstripping the 0.6 percent pace in the two previous quarters. It was the economy's best quarterly showing since first quarter 2002.

INSEE official Michel Devilliers said growth for the year should reach 2.0 percent rather than the 1.7 percent foreseen by the government.

The Organisation for Economic Cooperation and Development on Tuesday likewise forecast two percent growth this year and 2.6 percent in 2005 after 1.1 percent in 2002 and 0.5 percent in 2003, a 10-year low.

"The recovery is well underway," said Economy Minister Nicholas Sarkozy.

"France is now prepared to play a larger role in global growth. An economic policy that favours confidence and domestic demand ... while at the same time continuing to improve public finances should support the recovery and employment growth."

Sarkozy maintained that the economy was now humming along at an annual
rhythm of three percent.

The French government got a further dose of good news Wednesday with a report from customs authorities that France's trade surplus in March expanded to EUR 827 million (EUR 982 million) from EUR 320 million in February.

Devilliers of INSEE attributed the economy's first quarter-result to "very strong" household spending at the start of the year and to the production of energy during a cold spell in March.

But at the CDC-Ixis bank analyst Laure Maillard warned that "unemployment is likely to creep up, confidence is low and price prospects, especially for oil, are worrying."

"In the first quarter, household spending was concentrated in January, the sales period. We are very cautious about consumption prospects in the second quarter and we don't see this result as a trend."

At Natexis Banques Populaires, economist Marc Touati asked: "How are households going to continue spending in the face of declining job prospects and a stagnation in their real disposable income?"

Jean-Marc Lucas of BNP Paribas also noted that the stronger-than-anticipated first quarter performance "will reduce the extenuating circumstances" claimed by France if it fails to curb its public deficit.

France, struggling with tepid growth, has repeatedly failed to honour its obligation under the European Union's Stability and Growth Pact to hold its annual public deficits to under three percent of output.

©AFP

Subject: French news

 

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