France enters recession

3rd October 2008, Comments 0 comments

Statistics agency Insee predicts the French economy will continue shrinking, while Finance Minister Lagarde says “the risk of negative growth is now real”

3 October 2008

PARIS -- France is in a recession, with economic reduction expected in the third and fourth quarters of 2008, the country's national statistics agency said Friday.

The Insee statistics agency said it expects the economy to shrink by 0.1 percent in both the third and fourth quarters. Following a 0.3 percent fall in the second quarter, growth is down to 0.9 percent for 2008.

Insee said its forecasts, which are based on the assumption that the current financial crisis does not worsen, also expect unemployment to rise to 7.4 percent by the end of 2008, from 7.2 percent in the third quarter.

The predictions triggered a debate over the definition of recession, which economists generally define as two consecutive quarters of falling gross domestic product. Government officials insisted France is experiencing very slow growth but is not in a true recession because growth for 2008 is still expected to be positive and is close to the government's prediction of 1.0 percent growth for the year.

French Finance Minister Christine Lagarde, who until now denied that the country was headed towards a recession, said "the risk of negative growth this autumn for the second consecutive quarter is now real".

Lagarde blamed high oil prices, the strength of the euro earlier in 2008, and the worsening financial crisis for the recession.

The finance minister said the government is "totally mobilised" to protect French consumers' spending power, and said that the priority should now be on re-establishing confidence on the financial markets, "so that this weak economic conjuncture remains temporary".

[AP / Expatica]

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