Growth falls short, adding pressure on Sarkozy

15th May 2007, Comments 0 comments

PARIS, May 15, 2007 (AFP) - French first-quarter growth fell short of government expectations, official data showed on Tuesday, adding pressure on President-elect Nicolas Sarkozy to make good on a pledge to shock the economy into a faster track.

PARIS, May 15, 2007 (AFP) - French first-quarter growth fell short of government expectations, official data showed on Tuesday, adding pressure on President-elect Nicolas Sarkozy to make good on a pledge to shock the economy into a faster track.

The national statistics institute INSEE said the economy expanded by 0.5 percent in the January-March period, the same pace as the fourth quarter, with growth expected to come to close to 2.0 percent for the year, roughly the same as in 2006.

Finance Minister Thierry Breton, a day after Sarkozy's election victory, declared that economic momentum had picked up and that growth in annual terms was projected to be 2.5-3.0 percent this year.

While the first quarter was consistent with INSEE's forecast, it was well below the 0.8 percent foreseen by the Bank of France.

The performance also meant that France continued to lag its key European partners. Growth in Gernmany came to a stronger-than-expected 0.5 percent in the first quarter, despite the impact of a sales tax increase, while Spain recorded momentum of 1.0 percent and Britain 0.7 percent.

Analyst Nicolas Bouzou at research group Asteres said the first quarter performance was nonetheless "reassuring, in that the French economy has at least managed to put together two consecutive quarters of reasonable growth."

"But it is sluggish growth and highlights the urgent need to adopt measures to revitalize our productive system."

He noted that Sarkozy, who takes office on Wednesday, was expected to move quickly on legislation to exempt overtime from taxation and eventually to all but eliminate inheritance taxes.

Bouzou hailed such steps but called for tax incentives "that go a little bit further."

Sarkozy has pledged to implement "a clean break," even a "rupture," with past practice through measures to remove structural shackles on the economy that he says have suppressed dynamism and innovation.

At Xerfi, another think tank, Alexander Law said Sarkozy, despite the economy's disappointing showing in the first quater, was coming to power "under rather favorable economic signs."

He said that although household spending weakened, business investment and the pace of exports had strengthened.

Analysts attributed the slower first quarter pace principally to inventory variations.

But Bouzou said that trend suggested that "factories have begun to get rid of unsold goods," which should lead to increased output and more robust growth  for the rest of the year.

"Prospects for the second quarter of 2007 are favorable," said Mathieu Kaiser of BNP Paribas bank, notably if the inventory draw-down continues.

He added that the ecomomy had the potential to expande faster than 0.5 percent in the second quarter but warned that a downturn remained a possibility in the face of slower activity in the United States, an appreciating euro and higher interest rates.

Other data released on Tuesday showed that France managed to reduce budget overspending to 2.5 percent of output last year, well within a 3.0 percent limit imposed by eurozone regulations.

At the same time the public debt narrowed by two points to 63.7 percent of gross domestic product at the end of last year.

But that performance still breached a European Union rule stipulating that public debt should be held to a maximum of 60 percent of output.


Copyright AFP

Subject: French news

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