French growth falters

20th May 2005, Comments 0 comments

PARIS, May 20 (AFP) - The French economy faltered in the first quarter, official data showed on Friday, casting gloom on the outlook for the rest of the year.

PARIS, May 20 (AFP) - The French economy faltered in the first quarter, official data showed on Friday, casting gloom on the outlook for the rest of the year.  

Gross domestic product grew by 0.2 percent in the first quarter of 2005 from the figure for the previous quarter, the statistics institute INSEE reported. This was less than half the figure expected by economists who had forecast 0.4-0.5 percent.  

Many of them suspect that growth in the second quarter of this year will also turn out to be weak, and that this would mean that growth for the year might scarcely reach the lower end of the range forecast by the government of 2.0-2.5 percent.  

However, the head of growth calculations at INSEE, Michel Devilliers said that the economy could pick up in the second half of the year because "fundamentally, the situation remains healthy".  

He added that figures in the first quarter had been undermined by a reduction of spending on health, perhaps because the government had introduced measures to reduce a deficit on the social security budget.  

The statistics institute INSEE, which published the adjusted gross domestic product data, also revised down growth for 2004 from 2.4 percent to 2.1 percent.  

However, it revised up the 2003 figure sharply to 0.9 percent from 0.5 percent, to give an adjusted outcome of 0.8 percent.  

In the first quarter of this year, household consumption had slowed to show growth of 0.7 percent after 1.1 percent in the fourth quarter of last year, but remained firm, contributing  0.4 points to the growth calculation.  

Business investment rose by 1.6 percent after an increase of 1.9 percent in the previous quarter, contributing 0.2 of a point to overall growth.  

Variations in stocks reduced growth by 0.1 point, after a reduction of 0.3 points in the previous quarter.  

However, trade in goods had made a net negative contribution for the first time since 2000.  

At finance house Xerfi, economist Nicolas Bouzou commented: "This is a sledgehammer blow. It means that in the first quarter, growth in France was not even half of the eurozone figure. The French economy has performed one-fifth as much as the German economy."  

He noted that the data showed consumer spending slowing, which meant that the French had ceased using savings to finance spending and were making less use of credit.  

Investment by businesses was also slowing. However, investment in housing remained strong because interest rates were low and despite sharp price increases.  

The worst surprise came from the foreign trade data which had slowed growth by 0.2 percentage points.  

At Natexis Banques Populaires, economist Marc Touati said: "French growth has fallen into its old habits, in other words sluggishness. Growth for 2005 looks particularly bad.

At the end of the first quarter, the growth so far assured this year was 1.0 percent compared with 1.4 percent at the same time last year."  

Growth in the second quarter looked like being 0.3 percent at best. Any fall of the value of the euro would take at least six months to stimulate exports and reduce imports.  

Economist Emmanuel ferry at Exane BNP Paribas said that the first-quarter figure was "very disappointing". And at BNP Paribas Jean-Marc Lucas commented: "These new weak figures clearly limit the prospect for growth for the whole of 2005. Growth is likely to be closer to 1.5 percent than 2.0 percent for the year, below 2.0 percent for the third time in four years. On such a performance, unemployment is unlikely to fall this year."  

He said that the current unemployment rate of 10.2 percent was likely to be the average figure for the year.  

Economist Laure Maillard at Ixis CIB said: "Growth in the first quarter is very disappointing."  

She added: "With this disappointing figure, we doubt that growth in the euro zone can amount to 0.5 percent in the first quarter, rather 0.4 percent, with Germany showing 1.0 percent, Italy minus 0.5 percent and Spain 0.8 percent.  

Societe Generale economist Olivier Gasnier commented that "the bad surprise comes from foreign demand".  

INSEE said that tax revenues had risen strongly last year owing to receipts from sales tax and corporate tax and this would help to reduce the public deficit, which remained high at 3.6 percent of output.  

This is in breach of EU and eurozone rules limiting the deficit to 3.0 percent of output.  

The total percentage of production taken by obligatory levies such as taxes had risen to 43.4 percent in 2004 from 43.1 percent in 2003.



Subject: French News

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