New data underscores French economy weakness

13th September 2005, Comments 0 comments

PARIS, Sept 14 (AFP) - A forecast of weak growth for the third quarter issued Wednesday by the Bank of France and poor trade data published Tuesday spelled more bad news for the French economy and bode ill for the rest of the year.

PARIS, Sept 14 (AFP) - A forecast of weak growth for the third quarter issued Wednesday by the Bank of France and poor trade data published Tuesday spelled more bad news for the French economy and bode ill for the rest of the year.

The French economy is expected to expand 0.3 percent in the third quarter, the Bank of France reported. This meant that if there were no contraction of the economy, growth for the whole of the year would be 1.4 percent irrespective of additional expansion.

Separately, Finance Minister Thierry Breton said on French television LCI that the government foresaw growth next year "above two percent".

Retail sales in August showed a marked improvement but the bank said prospects for industrial activity "pointed downwards."

However, official data on Tuesday also showed that inflation remained subdued despite high costs of imported energy, partly because industrialists faced strong market pressures against passing on their increased costs.

Customs data, seasonally adjusted, showed that the trade balance showed a doubled deficit in July of EUR 2.669bn from a deficit of EUR 1.319bn in June.

The value of exports in July declined to EUR 28.542bn, a trend that authorities said reflected lower sales abroad of automobiles and intermediate goods, while that of imports came to EUR 31.211bn.

The figures followed publication last week of disappointing industrial production data that clouded recently improving unemployment statistics. The government recently lowered its forecast for economic growth this year to 1.5-2.0 percent having begun the year with a target of 2.0-2.5 percent.

The French data contrasted with the equivalent figure in Germany, France's main trading partner and the economy in Europe against which France is most frequently compared.

Official German data on Tuesday showed that Germany had achieved the highest-ever six-month trade surplus since 1950 in the first half of this year owing to strong global demand for German goods.

The six-month trade balance showed a surplus of EUR 84.8bn from EUR 84.2bn in the same period of last year.

The French national statistics institute INSEE meanwhile reported that French consumer prices rose by 0.4 percent in August from July and 1.8 percent from August 2004.

In July, French prices overall had fallen by 0.2 percent from the June figure.

INSEE cited an end to summer sales, higher tourism-related prices and increased energy costs. The customs service said that in July the value of energy product imports had risen to more than EUR 4.7bn from an average of four billion euros in the second quarter.

The customs data showed that exports to other European Union countries declined in July, but exports to Asia were robust.

At Natexis Banques Populaires, analyst Alexandre Bourgeois commented that the French figures amounted to a "very sharp worsening" of the trade balance in July, and the second-worst on record after figures in December 2004, owing to a fall in exports and rise in imports. French consumers were buying increasing quantities of imported goods.

In the last 12 months France had run up a record trade deficit of EUR 21.8bn and this "is likely once more to hit French growth in 2005", said Bourgeois.

Bourgeois added that the trade deficit "having knocked 0.9 and 1.1 percentage points of the growth of the French economy in the last two years, the deficit this year, likely to amount to nearly EUR 20bn, would again hit growth by 0.9 points."

Although French exports to the area covered by the Association of South East Asia Countries had risen by 34 percent on a 12-month basis, French exports were weak on strongly growing markets

At research institute Xerfi, analyst Nicolas Bouzou said that, yet again, France had not benefited from strong international trade in July, and the strength of the euro was not the only explanation since French exports within the eurozone had also fallen.

A fall of exports of engineering equipment to Germany was particularly worrying and "clearly" reflected a lack of competitiveness. Investment in Germany was strong and French exports should be benefiting, he said.

Bouzou said: "It is increasingly clear that out forecast for growth in 2005, of 1.5 percent, is now at the high end of our hypothesis."

At CCF bank, analyst Nicolas Claquin commented that "the industrial sector is showing worrying signs of weakness". The figures were in line with weak performance in recent years and a loss of market share for France.

Claquin warned: "It is possible that France has entered a lasting situation of deficit."

One factor restraining prices, he said, was strong competition notably from emerging countries and particularly from China.

Copyright AFP

Subject: French news

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