Violence could endanger economic recovery

8th November 2005, Comments 0 comments

PARIS, Nov 7 (AFP) - Violent unrest in France for the past 11 days has left the country grappling to explain the wanton destruction of property and some economists and business leaders have begun to warn that the turmoil could imperil an economic recovery.

PARIS, Nov 7 (AFP) - Violent unrest in France for the past 11 days has left the country grappling to explain the wanton destruction of property and some economists and business leaders have begun to warn that the turmoil could imperil an economic recovery.

There is alarm for the country's tourism industry, concern about a decline in consumer confidence and a fall in foreign investment -- not to mention fears about the devastation of businesses and the impact of increased security costs if the situation worsens.

"This is exactly what the French economy didn't need," said Nicolas Bouzou, chief economist at Paris-based economics consultancy Xerfi.

The first fatality from the rioting was recorded Monday when a 61-year-old man died from injuries sustained in a beating on Friday. During 11 straight nights of unrest in France several police have been wounded by gunfire, some 5,000 cars have been burned and more than 1,000 people arrested while shops and warehouses have been targeted by arsonists.

Economists worry that an economic pick-up forecast for the final quarter of the year and an acceleration of growth in 2006 could be jeopardized. The French economy is expected to expand by about 1.5 percent this year.

Marc Touati, an economist at French bank Natexis Banques Populaires, warned that the breakdown in public order could undermine consumer confidence in the last quarter of the year, a vital period for retailers.

"This damaging climate could have a direct impact on end-of-year sales ... What's more, the end of the year is a determining period for the economy," he said.

Touati said that a fall in business confidence would impact hiring plans by companies and, combined with weakness in consumer confidence, could "put a premature end to the recovery".

The only economic advantage from the social unrest has been that the euro has declined as a result, making exports from the eurozone more competitive on international markets, Touati said.

Citing a report on foreign investment in France from the Organisation for Economic Co-operation and Development, Bouzou said that foreign investment in France had nearly halved in 2004 compared with 2003 and that the current events further damaged the attractiveness of France as a destination for foreign capital.

This sentiment was echoed on Monday by the leader of the French employers' federation, Medef, who pointed to the "very serious" effects of the violence, particularly on France's image and on sectors such as the restaurant and hotel businesses.

Medef chief Laurence Parisot, talking on French radio, said that the image of France "is deeply damaged, it is all a matter of the question of the attractiveness of France which is laid open".

Referring to the immigrant origins of much of the population in the areas hit by the violence, Parisot also said that business was "the best place for integration that anyone could imagine, perhaps even more so than football teams or rock bands."

The wave of urban violence, with dramatic television images going around the world, has led a number of foreign governments to warn their citizens about travel to France, which is the world's top tourist destination with 75 million foreign visitors a year.

Australia, Austria, Britain, Canada, Germany, Hungary, Japan, Russia, Spain and the United States have all issued advisories recommending that their nationals exercise extreme caution because of the troubles.

France's tourism minister, Leon Bertrand, said that the riots "risk causing a problem in the future for the tourism industry", but insisted the country remained safe for visitors and blamed foreign media for misleading the public with headlines claiming "Paris is burning".

Some economists are less pessimistic about the impact of the violence and insist on the resilience of the French economy.

Eric Heyer, an economist at French economic research institute OFCE said that French consumer confidence would remain stubbornly at relatively modest levels and that a recent fall in unemployment and data showing strong consumption of manufactured goods would act as counterweights to the effect of the unrest.

The government-sponsored Invest in France Agency (AFII) said that the riots would make no difference to foreign companies which were considering investing in France.

"Overseas, they separate politics from the economy," said the agency, underlining that investment decisions were based on more long-term perspectives.

In any case, said AFII, at this stage "we haven't had any calls from any worried investors".

Copyright AFP

Subject: French news

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