French trade deficit shrinks but analysts remain glum

11th January 2005, Comments 0 comments

PARIS, Jan 11 (AFP) - French data released Tuesday herald continued sluggishness in the country's economic momentum and cast fresh doubt on the likelihood that growth will hit the government target of 2.5 percent this year, analysts said here.

PARIS, Jan 11 (AFP) - French data released Tuesday herald continued sluggishness in the country's economic momentum and cast fresh doubt on the likelihood that growth will hit the government target of 2.5 percent this year, analysts said here.

While the latest figures showed a narrowing in the France's trade deficit in November and a slight increase in industrial output in the same month, they were seen by analysts as being too lacklustre to suggest a noticeable rebound in the overall economy.

Ernest-Antoine Seilliere, head of the French employers' association Medef, said the official 2.5 percent growth target for 2005 would likely be "difficult to meet" because of a stronger euro and weaker dollar as well as higher prices for raw materials.

He said expansion of around two percent this year was more probable, adding that such prospects should spark calls for economic reform.

"When you don't have the capacity for growth you have to commit yourself to reforms," he told a news conference.

"We think that the French public understands that reform, that is to say the modernisation of French society, is indispensable," he maintained, citing the administration of the retirement scheme, health insurance, education and research as areas of concern.

French Finance Minister Herve Gaymard later in the day said the economy appeared to have expanded 0.6 to 0.8 percent in fourth quarter 2004 after a stagnant third quarter.

But he too voiced caution about the government's 2.5 percent projection for this year.

"We must ... remain extremely vigilant in the face of fluctuations in the price of oil and the prolonged under-valued dollar," he said.

Customs authorities had earlier said France again posted a deficit in its monthly trade balance, although the shortfall had narrowed to EUR 1.08 billion (USD 1.42 billion) in November from 1.841 billion in October.

In a separate report the national statistics institute INSEE said seasonally adjusted industrial output was up 0.1 percent in November from October.

But manufacturing production, which excludes food and energy, fell 0.3 percent in November and October after a 3.2 percent gain in September.

For Marc Touati, an analyst with Natexis Banques Populaires, the November trade figures suggested that France was now vulnerable to chronic deficits "linked not only to the excessive strength of the euro (which makes euro-denominated products more expensive abroad) but to the poor specialisation in French exports."

He noted that while overall world trade increased by about 15 percent last year, the value of French exports rose just 5.4 percent, far less than the10.5 percent gain recorded by Germany.

At the same time, imports increased eight percent in value in 2004, Touati said, adding that France should post a 2004 trade deficit of around 6.5 billion euros, its worst performance since 1988-1991 when it suffered from a structural trade shortfall.

The 2005 deficit should come to about EUR 2 billion.

At the financial research group Xerfi economist Nicolas Bouzou said France's trade performance was hobbled by the weakness of its presence in emerging market countries and an over-reliance on the automobile, aeronautic and consumer goods sectors.

Emmanuel Ferry of Exane BNP Paribas noted that while manufacturing output should show a 2.1 percent increase in 2004, its best showing since 2000, it was nonetheless "a mediocre performance relative to the rest of the world and, furthermore, this growth is not likely to be maintained in 2005."

He forecast economic growth in 2004 of two percent, declining to 1.4 percent this year.

At Ixis CIB researcher Laure Maillard predicted that industrial output will be hampered this year by an appreciation of the euro, high oil prices and a slowdown in world trade activity.

© AFP

Subject: French News

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