French economy unlikely to reach forecasts

19th August 2005, Comments 0 comments

PARIS, Aug 19 (AFP) - French economic momentum faltered in the second quarter of the year, increasing a mere 0.1 percent compared with the first, in the face of weakening household spending and a decline in business investment, the INSEE statistics institute reported Friday.

PARIS, Aug 19 (AFP) - French economic momentum faltered in the second quarter of the year, increasing a mere 0.1 percent compared with the first, in the face of weakening household spending and a decline in business investment, the INSEE statistics institute reported Friday.

The growth figure, consistent with an initial forecast issued by INSEE a week ago, casts a long shadow over the government's objective of growth approaching two percent this year after an expansion of 2.1 percent in 2004.

Analyst Marc Touati of Natexis Banques Populaires warned that as unemployment was likely to remain high and domestic spending sluggish, "even if there is a small pickup in the second half, annual growth will hardly come to 1.5 percent this year".

He noted that household spending in the second quarter declined 0.3 percent, its worst showing since the fourth quarter of 1996.

"This trend is a pointed warning for the government, as it reveals the limitations of all the small steps adopted by different economy ministers to artificially prop up consumption," said Touati.

For Nicolas Bouzou of the research group Xerfi "the most worrisome point is the fall in investment by non-financial enterprises, 1.2 percent, the sharpest since the second quarter of 2002."

He said the trend was of particular concern because the current investment climate was characterized by low interest rates and sound operating margins.

But as negative factors, he said, "one could certainly point to a surge in oil prices or the strong euro. But we cannot omit purely national factors. Unstable economic policies and heavy regulation of the services sector are two other good reasons for businesses not to invest."

Speaking earlier this week Finance Minister Thierry Breton said he was "much more confident about the second half. We clearly feel, when considering for example enterprise creation, industrial production or business confidence, that all these indicators are on their way to becoming positive."

Analyst Bouzou of Xerfi said he too saw some hope for the near term, noting that business leaders are in better spirits influenced by the possibility that the euro will continue to weaken against the dollar, thereby boosting the competitiveness of French exports.

"That would be just about our only hope for reaching growth of around 1.5 percent in 2005," said Bouzou.

Copyright AFP

Subject: French news, French economy, euro, Thierry Breton, economic growth, INSEE

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