OECD sees conditional French economic recovery

24th May 2005, Comments 0 comments

PARIS, May 24 (AFP) - A French economic recovery set to take root later this year, after uneven quarterly growth, is dependent on an improvement in still fragile confidence and an increase in export demand, the OECD said Tuesday.

PARIS, May 24 (AFP) - A French economic recovery set to take root later this year, after uneven quarterly growth, is dependent on an improvement in still fragile confidence and an increase in export demand, the OECD said Tuesday.  

Growth in French gross domestic product should be 1.4 percent in 2005 and 2.0 percent in 2006, the Organization for Economic Cooperation and Development said in its twice-yearly economic survey.  

The forecasts were revised sharply lower from the 2.0 percent and 2.3 percent projections made in the OECD's last Economic Outlook.  

GDP growth and demand have been particularly volatile since mid-2004, with the slowdown in the first quarter of 2005 partly due to lower government spending.  

While GDP momentum was likely to be erratic during the first half of 2005, the expected economic pick-up should push growth averaging 2.0 to 2.5 percent through to the end of 2006.  

But the upswing looks uneven, the OECD said, citing a fall in industrial production in February and March and a "significant weakening" in business confidence.  

The report in addition pointed to a decline in consumer confidence and savings rate in the first quarter.  

The drop in the household savings rate was due to the government's one-time relaxation of withdrawals from tax-favoured savings schemes. "While the government is considering repeating this scheme, it cannot be maintained for long," the OECD warned.  

Exports were expected to pick up "quite strongly" this year in response to rising demand growth abroad, particularly from oil-exporting countries as they spend their windfall from surging oil prices, the 30-nation OECD said.  

The recovery depends partly on this increasing export demand and "on French firms remaining sufficiently competitive to take advantage of it," it added.  

France's public finances "are in poor shape," the OECD said.  

In contrast to the French government's view that the public deficit would be held below the 3.0 percent of GDP ratio required by EU budgetary rules, the OECD said it saw the public deficit stuck at the 3.0 percent ceiling both in 2005 and 2006.  

Previous OECD deficit projections for France were at 3.1 percent and 2.9 percent, respectively.  

Unemployment "remains stubbornly high" and was likely to remain at 10 percent, despite recent government commitments to attack joblessness, and fall to 9.6 percent by end-2006, the OECD said, revising up its November forecasts of 9.7 percent and 9.2 percent.  

"A major reduction in unemployment will require labour market reforms," it added.

 

© AFP

Subject: French News

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