OECD sees rebound in French economy next year

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The Organisation for Economic Cooperation and Development predicted growth in 2008 of 1.8 percent

   PARIS, Dec 6, 2007 (AFP) - The French economy will slow in the first half
of next year but should then bounce back thanks to tax cuts, employment gains
and a potential strengthening of exports, the OECD said Thursday.
   The Organisation for Economic Cooperation and Development in its twice
yearly assessment predicted growth in 2008 of 1.8 percent, down from an
earlier forecast of 2.2 percent.
   But it added that the economy had the capacity to return to "near
potential" momentum in 2009.
   After an expected pace of 1.9 percent this year and weakness early in 2008,
economic growth should climb back to 2.0 percent in 2009.
   The OECD also predicted that France was unlikely to make further headway in
reducing its budget deficit and said a planned overhaul of public spending
will have to be maintained.
   "To strengthen longer-term prospects, planned reforms of public
administration, pension schemes and labour contracts will need to be carried
out so as to help contain public expenditure growth, achieve European Union
commitments and slow the decline in labour force participation," the report
   President Nicholas Sarkozy, after taking office last May, is in the process
of implementing tax cuts, as well as an easing in what are seen as labor
market constraints and overly generous pension plans for certain state
   The OECD predicted that some of those measures should have a positive
impact, with reductions in income taxes helping to boost consumer spending.
   Unemployment, a persistent drag on French growth, is projected to decline
from 8.0 percent of the workforce this year to 7.5 percent in 2008 and 7.4
percent in 2009.
   In addition, and despite a steadily appreciating euro, the loss of overseas
market share by French exporters "has been very limited so far in 2007."
   The OECD said: "Should this improvement be sustained, the future growth in
foreign markets will contribute to a more vigorous pick-up in French exports."
   The report made no mention of the competitiveness of French industry, which
economists here in the past have cited as a major problem for exporters.
   The OECD assessment, while generally upbeat about French prospects, said
much depended on continued bouyancy in consumer confidence.
   France, unlike the United States, does not offer subprime, or high risk,
home mortgages and has so far been been direct sufferring from the meltdown in
the US housing sector and the resultant upheavals on global markets.
   But the report cautioned that the impact of domestic French bank exposure
to securities backed by subprime loans and the effect on consumer credit
availability was not yet fully known in France.
AFP 2007

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