France stands by target for 2.0-percent growth in 2011

4th January 2011, Comments 0 comments

France insisted on Monday that it could achieve its targets to cut the budget deficit and for 2.0-percent economic growth this year, but consumers say they are worried about unemployment and inflation.

Budget Minister Francois Baroin said on France Inter radio that economic growth "is fragile but it is there" and "we have every reason for confidence in our forecasts."

His remark contrsted with a downward revision last week by the French statistics agency INSEE to its second and third-quarter growth estimates.

That setback casts a shadow across the government's targets of 1.6 percent growth in 2010 and 2.0 percent in 2011.

The French economy needs to grow by 0.7 percent in the final quarter of 2010 if growth for the whole year is to measure up to 1.6 percent.

But the statistics agency expects the French economy to grow by merely 0.5 percent in the fourth quarter of 2010.

The economy grew by 0.6 percent in the second quarter and 0.3 percent in the third, according to INSEE's latest estimates.

The French government also needs to find 30 billion euros (40 billion dollars) in savings and/or revenue to squeeze its public deficit to 6.0 percent of gross domestic product (GDP) this year, Baroin stressed.

"We will make savings, we don't have any other choice," he said.

Referring to severe pressures from finanical markets on Portugal and Spain because of the heavily indebted state of their public finances, he said: "I don't want to the Spanish situation, I don't want a Portuguese-style austerity plan. In France, my responsibility is to balance the budget cuts so as to not damage growth."

Spain and Portugal have adopted radical austerity measures to cut down their budget deficits, but as a consequence are likely to see their economies contract, economists have warned.

Maintaining economic growth makes it easier for countries to pay down their debt.

Spain and Portugal have also seen their borrowing costs leap as investors demand higher returns to buy their debt.

France has so far largely been spared pressure on bond markets, but analysts warn Paris cannot take this for granted.

ING Bank said on Tuesday that according to its quantitative model, France no longer merited its AAA rating and was at risk of a rating downgrade by credit rating agencies.

"France is in danger territory, ranking alongside Belgium at AA+," the bank said in a research note, but qualified this by saying it was not forecast.

Last month, ratings agency Standard and Poor's maintained its top AAA rating on France, citing the country's "stable" political environment" and its "prudent economic policies."

France's chances of hitting its growth targets suffered another blow on Tuesday when INSEE said that consumer confidence fell in December after three months of increases.

French consumer confidence fell by three points to -36, which is way below its long-term average of -19.

Consumer consumption is a major component of growth in France, but French consumers are increasingly concerned about their situation and the future according to the survey.

"In particular, households reported a market deterioration in their personal finances in the recent past," BNP Paribas bank noted in a comment on the figures.

Consumer fears of inflation also surged, while concerns about unemployment remain significant, it added.

Analysts have been expecting a slowdown in consumer spending after the expiration at the end of 2010 of the government's "cash for clunkers" scheme, under which car owners have been offered a bonus for trading in their old vehicle and buying a new model, as well as other stimulus measures.

© 2011 AFP

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