French trade deficit at 'very serious' record, minister says

7th July 2011, Comments 0 comments

France showed a record trade deficit for May, marking a "very serious" lurch in a trend of weak competitiveness, a trade minister said, in contrast to strong export-led growth in Germany.

"What is happening is very serious," said Pierre Lelouche, French junior trade minister, warning that competitivity was at the root of the problem.

France has developed a structural trade deficit in recent years, and is trailing key trade and eurozone partner Germany.

Analysts have warned repeatedly that falling competitiveness is one problem, linked also to a relatively weak web of medium-sized companies compared with the situation in Germany.

Too many of these French companies produce mid-range goods whereas German firms tend to capture markets with high-quality, niche products, they say.

The trade deficit for May jumped to 7.42 billion euros ($10.62 billion) a month after crossing the 7.0-billion-euro threshold for the first time.

At 63.42 billion euros on a 12-month basis, the deficit for 2011 could rise above a 55-billion-euro gap reached in 2009, at the depths of the economic crisis.

An increasing competitivity gap with Germany is especially worrying for France.

A report by the Coe Rexecode institute in January, quoted at the time by Industry Minister Eric Besson, said that labour costs per unit in France had grown by 10 percent since 2000 while the equivalent costs had dropped by 15 percent in Germany.

At Xerfi consultants, researcher Alberto Balboni said that "the current economic environment doesn't allow us to foresee an improvement."

He noted what he considered to be worrying factors such as a drop in world trade generally, increased oil prices and a strong euro penalising exports.

Weak aerospace exports were largely to blame, said Francois David, president of credit insurer Coface.

"The irony is that Airbus has just landed an unprecedented harvest of orders" from the Paris Air Show but those numbers would not appear in export figures until delivery, David said.

Balboni said that the weight of the contribution from such big contracts, demonstrated an over -dependence on the aerospace industry.

"Aerospace represents ten percent of French exports and any slowdown in its performance has very negative effects," Balboni said.

France is the only country to have seen exports shrink since the economic crisis low point, Balboni said.

France has launched several programmes to stimulate exports, but with few results to show for it, analysts said.

"The export plans tend to focus on assistance," Francosi David said. "But the real subject is to have small and medium businesses (SME) grow and be successful at exporting. That is complicated because there are several brakes on SME's such as fiscal and regulation issues..." he said.

Pierre Lelouche said that "for too long, the weakness in our foreign trade has been masked by big contracts" in an implicit reference to strong factors in the French economy such as the construction of nuclear power plants, military equipment, aerospace products and high-speed trains

"But much of our technology has been transferred and yesterday's clients have become today's competitors," Lelouche said.

© 2011 AFP

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