French economy ‘recovering’

PARIS, Jan 6 (AFP) – The French economy perked up in the third quarter last year and should gain momentum early in 2004 after registering zero growth for all of 2003, analysts said here Tuesday.

But they noted that a downward revision for second-quarter growth, announced on Tuesday, meant that the French economy would not show any growth at all in 2003 in contrast to a government projection of 0.2-percent expansion.

French gross domestic product expanded 0.4 percent in the July-September quarter last year from the second after contracting by the same percentage in the second quarter from the first, the national statistics institute INSEE reported.

French Budget Minister Alain Lambert predicted Tuesday that growth this year would be “a little stronger in France than in the eurozone in 2004,” adding that he was sticking to the official government forecast of 1.7 percent.

INSEE had earlier estimated second-quarter growth at minus 0.3 percent, but the latest figures put this at minus 0.4 percent. This downward revision, according to analyst Nicolas Sobczak of Goldman Sachs, means that “2003 was a year of recession.”

He said: “Growth should come close to zero, the worst performance in 10 years.”

The government has forecast an expansion this year of 0.2 percent, which according to Marc Touati of Natexis Banques Populaires “is becoming less and less likely.”

He said: “To get there we would have to have an increase in GDP of 0.7 percent in the fourth qaurter, which is far from certain.”

But both Sobczak and Touati see better days ahead this year.

“GDP will pick up further in the fourth quarter of 2003 and early in 2004 thanks to the impact of the global recovery,” Sobczak said, warning however that the strength of the euro could prove a drag in the second half of the year.

Touati added that “if all goes well a performance of 1.8 percent (in 2004) seems feasible” but described the expected recovery as “mechanical” rather than an example of “strong growth.”

Lambert said that the government “expected pleasant fiscal surprises, more receipts than expected, which would be used to reduce the deficit.”

France and Germany have been slammed by European Union officials for allowing their public deficits to repeatedly exceed the limit of three percent of gross domestic product laid down in the EU’s Stability and Growth Pact.

Yet despite the pressure to rein in the shortfall, President Jacques Chirac made it clear in a New Year’s message that his government was not backing away from plans reduce income taxes and to ease the tax burden on companies that carry out new investment.

A spokesman for UDF, a political party that is a member of the Chirac government, warned of the possible impact of the tax cuts on the public deficit.

“The debate over the income tax cut must be closely tied to the country’s budgetary situation,” spokesman UDF Francois Sauvadet said.

“If it appears that the budgetary situation has not improved, it would be taking a risk to continue to cut taxes while aggravating the deficit.”

INSEE also reported Tuesday that company sales, excluding the food and energy sectors, increased 0.6 percent in October 2003 from September.

It said exports rebounded by 0.8 percent in the third quarter following three quarters of decline while imports were stable.

© AFP

                                Subject: France news