France flags behind with zero quarterly growth

15th May 2014, Comments 0 comments

The French economy is having a hard time recovering from the recent downturn, turning in zero growth for the first quarter of the year, official data showed on Thursday.

Against the background of a U-turn on policy by the Socialist government to cut a budget deficit and boost business, the latest data came as a disappointment particularly as several other European countries are pulling ahead.

The statistics agency INSEE had forecast that the economy would edge ahead with meagre growth of 0.1 percent between January and March.

By contrast, data for Germany on Thursday showed that the pace of growth there doubled in the first quarter to 0.8 percent, from 0.4 percent growth in the previous quarter.

France has the second-biggest economy in the eurozone after Germany, and its unfavourable performance with the neighbouring economic powerhouse has become a matter of major concern domestically, abroad and on financial markets.

Broader data for the eurozone economy indicates that recovery is pushing ahead, but moderately and is rather fragile, in part because of uncertainty over the Ukraine crisis.

French Finance Minister Michel Sapin reacted to the latest French data by saying that it was still "reasonable" for the country to aim for growth of 1.0 percent in the whole of the year.

Growth this year "will clearly be more than zero but it will not be strong enough," he said.

"The forecast by the IMF (International Monetary Fund) for France is 1.0 percent, and so we have figures which are perfectly reasonable targets."

However, most of the quarterly signals in the latest data from INSEE pointed downwards.

Household consumption, which is usually a main driver of growth in the French economy, shrank by 0.5 percent in the quarter.

In the previous quarter it had grown by 0.2 percent.

But since then, French households have received their 2013 tax bills, with measures to cut the budget deficit hiking taxes for all and with many people having to pay income tax for the first time.

- Business investment falls -

The government's new policies are strongly orientated to relieving taxes and charges on businesses to help make them more competitive. One objective is to give an immediate boost to business confidence to invest, to help growth and reduce record unemployment.

But the data showed that business investment fell by 0.5 percent, having shown signs of a slight recovery towards the end of last year.

France has developed a huge structural trade deficit in recent years, in contrast to a huge German surplus, and a central objective of government policy is to reduce this rapidly.

But in the first quarter, the trade performance flagged, crimping gross domestic product by 0.2 percent. Imports grew by 1.0 percent after a rise of 0.5 percent in the previous quarter, and exports grew by only 0.3 percent after growth of 1.6 percent at the end of last year.

The only sector to make a positive contribution was that of the production of goods and services which grew by 0.2 percent, or the same rate as in the previous quarter.

However, owing to a change in how the statistics are calculated, INSEE said that in the whole of last year, the economy grew by 0.4 percent, instead of by 0.3 perce nt as announced previously.

© 2014 AFP

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