OECD upbeat on French economic growth

11th May 2004, Comments 0 comments

PARIS, May 11 (AFP) - The French economy should stage a moderate recovery, with growth of 2.0 percent this year and 2.6 percent in 2005, though risks are posed by weaker industrial activity, unemployment and a strong euro, the OECD said Tuesday.

PARIS, May 11 (AFP) - The French economy should stage a moderate recovery, with growth of 2.0 percent this year and 2.6 percent in 2005, though risks are posed by weaker industrial activity, unemployment and a strong euro, the OECD said Tuesday.

The Organisation for Economic Cooperation and Development raised its November growth forecast of 1.7 percent for 2004 and 2.4 percent in 2005.

France should post a public deficit of 3.8 percent of gross domestic product (GDP) this year, unemployment of 9.9 percent and inflation of 1.9 percent.

In 2005, the deficit would be 3.6 percent, while unemployment would ease slightly to 9.6 percent and inflation would fall to 1.3 percent.

The OECD, which groups the world's wealthiest nations, said in its twice-yearly report that French growth "accelerated in the second half of 2003, reflecting strong government consumption and rising investment."

But "accelerating exports, which initiated the recovery, were offset by very rapid imports in the fourth quarter," the report said.

"Unemployment appears to have stabilised at just below 10 percent of the labour force and employment is now growing," it added.

France must now make substantial efforts to curb its public deficit and
reduce its debt, the report said.

Planned reforms of the public health insurance system and efforts to improve the functioning of the labour markets would help reach those goals.

"Overall, economic activity is projected to continue expanding, allowing the output gap to begin closing in 2005," the report said.

The output gap is the difference between what an economy is producing and what it could produce without generating inflation.

The rebound "was initially export-led, reflecting the resurgence in world trade. Nevertheless, world trade rose more rapidly and France continued to lose market share, principally because of the appreciation of the euro."

Increased activity "has been concentrated in the construction and
transportation sectors, as well as in the areas of health, education and public administration."

Economic data and business confidence "suggest that growth should continue to pick up strength in the first half of 2004. However, the vigour of the recovery needs to be confirmed."

Business surveys also indicated stronger growth, "although here too, there are question marks".

Export-order books in particular "have recently shown signs of weakening, following several months of improvement.

"The expected firming of the recovery could fail to materialise if the recent slowing of industrial output in the rest of Europe persists, if business confidence fails to strengthen further or if high unemployment prevents consumer confidence and demand from improving in the coming months.

"Similarly, if the euro were to continue to appreciate ... export growth would be weaker. Inflation would then be likely to come in lower and unemployment higher."

©AFP

Subject: French news

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