Silver lining in France’s gloomy economy

16th May 2008, Comments 0 comments

New data shows better-than-expected-growth in 2007 and an economic pickup in the first quarter.

16 May 2008

PARIS - France's right-wing government beamed and proclaimed its reforms were working after new data on Thursday showed better-than-expected growth in 2007 and an economic pickup in the first quarter.

The French economy grew last year by 2.1 percent, after seasonal adjustment, up from a previous figure of 1.9 percent, the INSEE statistics institute said.

Growth in the first quarter 2008 was unexpectedly strong at 0.6 percent, up from 0.3 percent in the final quarter of 2007.

President Nicolas Sarkozy seized on the figures as evidence his government was reviving the economy and that its growth forecast for this year was well based.

But analysts, while welcoming the data, took a cooler view.

"The results for 2007 and the forecasts for the first quarter of 2008 are in line with the government's forecast despite a difficult international context," Sarkozy said in a statement.

"This confirms our diagnosis of the situation in our country and of the remedies that it needs," said Sarkozy, whose government had based its budget for 2007 on growth of 2.0-2.5 percent.

Sarkozy was "delighted" by the growth figures, according to the statement.

Economy Minister Christine Lagarde highlighted INSEE's unadjusted figure for 2007 growth of 2.2 percent, before the number of working days was taken into account, saying she was "jubilant".

She commented that "our official forecasts for growth in 2008 of 1.7-2.0 percent are well backed up," by the new data.

INSEE calculated its figure for first quarter growth meant the economy would expand by at least 1.4 percent in 2008, based on the situation end March and barring a recession.

The European Commission had predicted French growth this year to reach 1.6 percent, while the International Monetary Fund has forecast 1.4 percent for 2008 and 1.2 percent for next year.

Right-wing Prime Minister Francois Fillon said the data was "very good news" and showed the economy was holding up "very well" in a difficult climate.

But the opposition Socialist spokesman on the economy, Michel Sapin, attacked "the government's astonishing bragging," pointing out that French growth still lagged far behind Germany.

New European Union data showed Thursday that the eurozone economy rebounded with unexpected growth of 0.7 percent in the first quarter of the year, boosted by a German surge of 1.5-percent.

Sapin also stressed that Paris was about to receive a formal warning from Brussels over the state of its public finances.

INSEE said France's debt had been revised down to 63.9 percent of national output instead of 64.2 percent calculated earlier for 2007, but the country's public deficit remains perilously close an EU limit of 3.0 percent of output.

Analysts, who have been gloomy about the French outlook, said the data was a nice surprise given the troubled global economic picture.

"This is clearly a good figure," said Nicolas Bouzou of research house Asteres, arguing that it "confirms the resilience of the French economy in a tormented international context."

Mathieu Kaiser of BNP Paribas agreed it was "a good surprise in the current climate of high uncertainty."

But they also warned inflation, at 3.0 percent, was likely to keep French growth in check for the rest of this year.

Alexander Law, of the market analysis firm Xerfi, warned the upturn was unlikely to last.
"For as long as inflation remains at such high levels, as long as the euro is strong and until the financial crisis is settled, no economist or government will be able to cry victory."

Bouzou also said it was unclear whether Sarkozy's economic policies were to thank for the upturn and that his reforms over the past year had failed to prevent a sharp fall in consumer spending.

"The government is congratulating itself for good figures even though nothing firm shows they can be put to its credit," he said.

The president's popularity has collapsed to a historic low among French voters worried about the economy and frustrated by a lack of tangible results from his reforms.

[AFP / Expatica]

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