Sluggish French economy casts shadow on eurozone

12th August 2005, Comments 0 comments

PARIS, Aug 12 (AFP) - The French economy, the second biggest in the eurozone, expanded a mere 0.1 percent in the second quarter of the year, figures showed on Friday, a disappointment after data on Thursday had given rise to renewed optimism about Europe's economic prospects.

PARIS, Aug 12 (AFP) - The French economy, the second biggest in the eurozone, expanded a mere 0.1 percent in the second quarter of the year, figures showed on Friday, a disappointment after data on Thursday had given rise to renewed optimism about Europe's economic prospects.

The figure from French national statistics institute INSEE measured the change in gross domestic product in France in the second quarter compared to the first quarter of 2005.

Expansion of 0.1 percent was far below the 0.5-percent estimate issued by the Bank of France several weeks ago, and beneath the more conservative 0.2 percent estimate from private economists.

"It's a very bad figure," said Nicolas Bouzou, an economist at the Paris-based economics consultancy, Xerfi. "With 0.1 percent growth in the second quarter, GDP growth in France is slowing down, even though in the first quarter it was pretty mediocre."

INSEE said it had revised upwards its estimate of growth in the first three months of the year 0.4 percent from a previous 0.3 percent.

On Thursday, a host of second-quarter GDP figures from other eurozone members led some to speculate that the leaden European economy was finally stirring.

A statement issued by the European Central Bank added to the sense of renewal and expectation by saying the eurozone economy was set to "expand in a sustained, albeit gradual, manner".

The main surprise on Thursday was data in Italy that showed the Italian economy had ended two quarters of contraction by growing 0.7 percent in the second quarter.

Elsewhere, figures showed the Dutch economy had grown by 1.2 percent in the second quarter compared with the first and that the Spanish economy had expanded by 0.9 percent.

The two biggest international business newspapers in Europe, the Financial Times and The Wall Street Journal Europe, both hailed the data as significant.

"Signs point to an upturn for eurozone's economy," a headline said in the Wall Street Journal, while the front page of the FT read: "Italian rally lifts eurozone".

However, data from Germany, the other half of the so-called Franco-German motor that drives the continental European economy, showed the German economy had stagnated in the second quarter, showing no growth compared to the first three months of the year.

The French GDP figure also fell below the average growth rate of the eurozone economy in the second quarter. Data from the European Union's Eurostat statistics agency on Thursday put growth at 0.3 percent for the 12-nation bloc as a whole.

"For the second consecutive quarter, the French economy did less well than the whole of the eurozone," said Bouzou at Xerfi.

The lacklustre performance also called into question official estimates of growth for the year.

The French government predicated its 2005 budget on annual growth of 2.5 percent and is sticking by a revised estimate of about 2.0 percent.

It warned in June of a possible EUR 4 billion (US $4.83 billion) shortfall in tax receipts but kept its public deficit estimate at 2.9 percent of annual output, just under the limit set by EU rules of three percent.

"Unless there's a miracle, the government forecast of two percent growth this year has no chance of being met," said Marc Touati, an economist at Natexis Banques Populaires.

Analysts see growth of the French economy in 2005 of about 1.5 percent.

Touati warned that the second-half recovery on which both the French and German governments are counting is extremely vulnerable to outside shocks. Much of the optimism has been fueled by surveys showing a rise in business confidence in the two countries.

"This recovery seems very fragile and, at the same time, will be limited," said Touati. "If the price of a barrel (of oil) continues to increase and if the euro doesn't get back on its downward path again, the recovery could vanish as soon as it appeared."

Copyright AFP

Subject: French news, economy, euro

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