French industry feels good, voters bad

8th May 2011, Comments 0 comments

The French economy is on the move after the dramas of the financial crisis but President Nicolas Sarkozy, down in the polls, is putting a brave face on his record of reform.

Industrialists say they are feeling good, the best for 10 years, but the feel-good factor has not fed through to voters.

Sarkozy made three main promises, to modernise the country, curb budget deficits and the debt, and to increase jobs and wage packets for the people.

Reforms have been made, but the hole in public finances is deeper and people are feeling the pinch of the crisis and now rising prices.

His long-serving Prime Minister Francois Fillon admitted as much at a morale boosting session of the main governing right-wing UMP party this past week, held with one year to go before a presidential election in which Sarkozy is expected to stand again.

They had governed "with honesty and courage to modernise France," but "we've had setbacks," he acknowledged, referring to jobs and living standards.

A recent poll said just 17 percent of voters think Sarkozy's record is "rather positive."

Sarkozy had intended that the initial discomfort of some of the reforms such as a sharp tightening of pension arrangements would be offset by another key measure, a switch away from the effects of the previous Socialist administration's reduction of the working week to 35 hours.

He promised that overtime would be relieved of charges, and that the overall reforms would boost the economy and job market. That was before the financial crisis, economic downturn in advanced economies and a big rise in state spending to cushion the economy.

Fillon regretted the gap between the reality of the reforms and the "feelings of the French".

Some leading indicators do point to a strong underlying pick-up in parts of the economy.

The French purchasing managers index (PMI), a key leading indicator of manufacturing activity, rose in April to the highest level for 10 and a half years, driven by activity in the services sector.

French industrialists are also increasingly confident about long-term prospects, with the industrial confidence index, a leading signal of drive in the economy, returning to pre-crisis levels.

At BNP Paribas bank, Frederique Cerisier said: "Industrialists are very optimistic, they see strong demand and expect activity to continue at a high level."

The government expects growth of 2.25 percent this year, compared to an outlook of 1.6-percent growth for the entire eurozone.

The number of people looking for work, a crucial factor in the feel-good equation, fell for the third month running in March. This had not been seen since the economic crisis began in early 2008.

"The French private sector has begun the second quarter with style, with growth accelerating at the fastest rate for more than a decade," Markit economist Paul Smith said.

But one central weakness is a structural trade deficit, which contrasts increasingly with a surplus by Germany, the powerhouse of the eurozone.

In view of the increasing evidence that Germany is getting on top of its budget deficit and is exporting into recovery despite the strength of the euro, Sarkozy has begun saying openly that France must learn from the German model of competitiveness.

The need for this appeared in a new set of trade data on Friday.

These showed a reduced deficit in March of 5.74 billion euros ($8.4 billion), but this was small comfort since the deficit in February at 6.37 billion euros was a record.

In France, the main reservoir of extra growth tends to come from internal consumption.

This structural trade deficit is of great concern to the government, and analysts say it reflects a lack of competitiveness as well as weaknesses in the sector of medium-sized companies, compared to the situation in Germany for example.

Consumers do not see good times ahead.

Spending on manufactured goods fell by 0.7 percent in March. Consumer confidence was steady in April, but way below the historical average.

At Assya Compagnie Financiere, economist Marc Touati said: "While not catastrophic, these developments are a reminder of a sad and inevitable reality, the little recovery in 2010 is already in the process of withering away."

At Xerfi consultants, economist Alexander Law said: "Unemployment remains high and inflation is running higher than wage increases."

A special advisor to Sarkozy, Henri Guaino, observed that in the four years of the president's time in office, there had been "a financial crisis, an economic crisis, a euro crisis, a raw materials crisis, crises south of the Mediterranean, the nuclear crisis."

He said: "These are calamities we've never experienced since the Second World War that knocked out our already-fragile societies. How can you imagine people to be happy!"

© 2011 AFP

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