French growth disappoints but outpaces Germany

10th February 2006, Comments 0 comments

PARIS, Feb 10, 2006 (AFP) - The French economy grew by 1.4 percent in 2005, preliminary official data showed on Friday, a faster rate of expansion than in neighbouring Germany but slower than forecasts by economists and French Finance Minister Thierry Breton.

PARIS, Feb 10, 2006 (AFP) - The French economy grew by 1.4 percent in 2005, preliminary official data showed on Friday, a faster rate of expansion than in neighbouring Germany but slower than forecasts by economists and French Finance Minister Thierry Breton.

Analysts said that a slowdown in consumer spending, a reduction in stock levels by companies and sluggishness in the automobile sector were important factors in explaining weaker-than-expected activity at the end of the year.

Growth in the fourth quarter compared to the third quarter measured only 0.2 percent, French statistics agency INSEE said.

Consensus among private-sector economists had been for annual growth of 1.6 percent.

The figure of 1.4 percent was also below a growth projection of 1.5-2 percent given by the government and reiterated by Breton mid-January.

Speaking to AFP on Friday, Breton underlined that the data was a first estimate and would be subject to revisions.

He recognised that the figure was "inferior to what almost all economists were seeing" but stuck by his forecast of an economic recovery in 2006 when growth would measure 2-2.5 percent.

"The main reason that we see (for the growth figure in 2005) is very localised in the automobile sector," he added.

The French car-making industry, comprising Renault and PSA Peugeot Citroen, has been hit by falling sales in France and has been implementing temporary layoffs to adjust output to demand.

Other economists gave additional explanations for the lackluster performance in 2005.

"It (the economy) has been mainly underpinned by household consumption in 2005, which lost steam at the end of year," said an economist at BNP Paribas, Mathieu Kaiser.

"Household spending on manufactured goods increased by only 0.2 percent quarter-on-quarter in the fourth quarter."

He also said that companies had likely continued to draw down their stocks, thereby placing fewer orders for new products, as inventory levels had reached record highs in previous quarters, Kaiser said.

Over the course of 2005, French economic growth measured 0.3 percent in the first quarter, 0.1 percent in the second and 0.7 percent in the third.

Expansion in France over the whole of 2005 was nevertheless higher than growth in Germany, where gross domestic product increased by only 0.9 percent according to preliminary data there.

Germany is the largest of the 12 eurozone economies.

For 2006, growth in France is forecast to accelerate to 2-2.5 percent.

Consensus among private-sector economists had been for growth of 2.1 percent, but some said that the weak year-end performance in 2005 might lead them to lower their projections.

Other data on Friday showed that the French trade deficit hit a record high in 2005 and had more than tripled compared with the figure for 2004.

The deficit measured EUR 26.459 billion in 2005 from EUR 8.284 billion in 2004, data from the French customs service showed.

French Trade Minister Christine Lagarde sought to downplay the significance of the development, saying it was "not a serious cause for worry".

"The deterioration is half explained by energy costs, but also by two other factors: the differential between the growth rate in France and in Germany, our biggest client ... and delayed effects of the appreciation of the euro," she said during a press conference.

Separately on Friday, data also indicated that French industrial production had fallen by 0.3 percent in December compared with November, reversing a strong gain the previous month.

Production in November compared with October had surged by 3.1 percent.

Copyright AFP

Subject: French news

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