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19/12/2008France heading for recession: official forecast

Despite the government’s stimulus package, INSEE says it is overly optimistic to forecast a slender expansion of 0.2 percent.

PARIS – France will fall into recession next year for the first time since 1993 and faces a steep rise in unemployment, the state statistics agency said Friday in its official economic forecast.
 
The government stuck with its forecast of a slender expansion in 2009 of 0.2 to 0.5 percent, however.
 
While hard hit by the global economic crisis, France has so far not been in recession as defined as two quarters of negative growth.
 
But the INSEE agency's verdict was bleak. The French economy grew by only 0.1 percent in the third quarter of this year, shrank by 0.8 percent in this quarter and will contract again by 0.4 percent in the first quarter of 2009.
 
The agency hopes for a slow recovery after that, but gross domestic product could still decline by 0.1 percent in the second quarter - marking a nine month long contraction - and 2009 as a whole could still see negative growth.
 
"The business climate has considerably deteriorated in France in the last year and a half, coming close to the levels seen in the 1993 recession," the report, released in Paris, said.
 
"Tighter lending and an all round rise in risk aversion are pushing firms to cut down on investment and expenditure and to scale back their inventories sharply," the report, entitled "Recessions", warned.
 
The agency predicted that the unemployment rate will rise to eight percent by the middle of next year, up from 7.3 in September this year.
 
"The financial situation in the coming months is the main source of uncertainty. Lingering doubts as to the value of banks' assets mean that a further worsening of the financial crisis cannot be ruled out," it warned.
 
Several French banks have been weakened by the global credit crunch and some have found themselves swept up in the panic surrounding the Madoff fraud and the full extent of their losses are still unclear.
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