French economy still ramped up for rally: OECD

28th November 2006, Comments 0 comments

PARIS, Nov 28, 2006 (AFP) - The French economy is recovering and set to post growth of 2.2-2.3 percent in the next two years, beating German output, but is struggling to remain competitive on world markets, the OECD said Tuesday.

PARIS, Nov 28, 2006 (AFP) - The French economy is recovering and set to post growth of 2.2-2.3 percent in the next two years, beating German output, but is struggling to remain competitive on world markets, the OECD said Tuesday.

After hitting a weak patch of 1.4 percent in 2005 and stagnating in the third quarter of this year, growth should accelerate to 2.1 percent for the whole of 2006, 2.2 percent in 2007 and 2.3 percent in 2008.

The Organisation for Economic Cooperation and Development said in a six-month review of the world economy that domestic consumption remained a key pillar of the French economy, but that house prices had overheated and the government had done little to reduce underlying budget deficits.

It identified trade as an economic weak point, while adding that "despite persistent competitiveness problems, the resilience of trading partner's imports should ensure that (French) exports remain on a rising path."

Nevertheless, the report said, "foreign trade is likely to continue to restrict activity."

The OECD data showed that France is set to catch up and overtake economic growth next year in neighbouring Germany, the eurozone's biggest economy.

Habitually, Germany acts as the main motor of growth in the 12-nation zone.

This year, France will trail 2.6-percent growth in Germany, but is then to surpass German growth of 1.8 percent next year and 2.1 percent in 2008.

The OECD estimated that French growth would reach 2.1 percent this year, with activity recovering from the third-quarter standstill caused by a draw-down of inventories.

Output by all 30 OECD members, meanwhile, should increase by 3.2 percent this year, but ease back to 2.5 percent and 2.7 percent in 2007 and 2008, the report said.

In France, "household consumption remains an important driver of growth", it noted, adding that unemployment should continue to fall from 9.1 percent of the workforce this year to 8.5 percent and 8.2 percent in 2007 and 2008.

That would help the government reduce the public deficit, which is expected to run at 2.7 percent of gross domestic product this year, below the eurozone ceiling of three percent.

The deficit was forecast to fall to 2.5 percent of GDP in 2007, and 2.3 percent in 2008.

Excluding temporary benefits from windfall tax receipts, however, France's structural deficit "should remain unaffected, since government efforts to reduce public-sector employment may be partly offset by the cost of assisted public employment schemes".

The OECD stressed that "in France, virtually no change in the underlying fiscal position is projected, with a reduction in the deficit being entirely cyclical".

Business investment would increase, however, and because "business confidence is buoyant and profits are high, vigorous productive investment should offset the slowdown in residential investment".

France was identified by the OECD as one of the countries along with Canada and Denmark where high housing prices threatened to undermine residential construction.

General inflation, as calculated by the EU harmonised index of consumer prices, was forecast at 2.0 percent in France this year, but expected to fall to 1.4 percent in 2007 before rebounding slightly to 1.6 percent in 2008.

Copyright AFP

Subject: French news

 

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