French economy may be missing out on recovery

PARIS, April 10, 2006 (AFP) – French industrial production data showed a slump on Monday leading economists to wonder if France is being left behind by global recovery because of problems over reform, the labour market and competitiveness.

The data, published shortly before the centre-right government dropped controversial reform of the labour market, showed that industrial production had fallen by 0.9 percent in February from the figure for January.

Output of manufactured goods, excluding production by the energy, agriculture and food industries, fell by 1.1 percent in February. In January it had risen by 0.8 percent.

Some analysts commented that the overall picture gave cause for concern about foreign investment in France and the competitiveness of French industrial goods.

However, one economist, Olivier Gasnier at Societe Generale bank, said: “These data are not as bad as they appear”.

He observed: “The improving trend is still in place and still consistent with an acceleration of gross domestic product in the first quarter”. But he added: “However, the recovery in industry is clearly lacklustre.”

At Xerfi consultants, economist Nicolas Bouzou was gloomier, highlighting a 1.3-percent fall of production of investment goods.

He said: “At a time when world growth, already very firm, is again accelerating, at a time when Germany is waking up and investing massively, pulling along the whole of the eurozone, it is this sector which should be showing the improvement of the international economic situation.”

The overall view showed that France was consuming “but has difficulty in producing and exporting”. Consequently he said that a forecast by Xerfi that the economy would grow by 1.8 percent this year did not look pessimistic.

In blunter terms, economist Marc Touati at Natexis Banques Populaires referred to the crisis over a plan to relax job protection for young people, called the CPE.

He commented: “Even before the negative effects of the CPE crisis on activity, the trend of industrial production in February presented already the picture of the current state of the French economy.

“Production, having advanced timidly by 0.3 percent in January, fell back by 0.9 percent in February across industry, and by 1.1 percent in manufacturing industry alone.

Touati said: “In addition, with the refusal of the CPE and the confirmation that France is incapable of reforming itself, more and more companies are going to continue or begin investing and employing people massively, abroad.

“The flow of direct investment by French companies abroad, having reached 80 billion euros in 2005, could well reach nearly 100 billion euros (121.0 billion dollars) this year.

“As for the inflow, having reached 40 billion euros last year, it could fall further by about 10 billion euros in 2006.

“It has to be said that, given recent events in France, foreign companies would really have to have turned altruistic to invest heavily in France.”

Warning that the economy might show a sharp slowdown in the second quarter, he said that the outlook for growth of 2.0 percent this year remained possible, but was fading.

At BNP Paribas bank, Mathieu Kaiser noted that the results contradicted rising industrial confidence data in recent months, and pointed to a contrast between strong household consumption and uncertain growth of industrial output which could lead to “an increase of the trade deficit in the next few months”.

And at Exane BNP Paribas, Emmanuel Ferry said that 12-month industrial output figures now showed a fall for the fifth month running in “strong contrast” to “dynamic world industrial output which is progessing at a rate of 5.0 percent”.

He commented: “This counter performance reflects profound industrial de-rating in France: behind in technology, poor industrial specialisation and weak exposure in regions of strong growth.

A big trade deficit showed that exports were weak in terms of world demand because of a crisis of competitivesness. Meanwhile imported goods were being drawn in heavily, particularly from low-cost regions, by household consumption and a strong property sector.

He observed: “Most of the growth will continue being driven almost exclusively by household consumption. This is why reforms must be intensified in three directions: the labour market, competition and prices, and the financing of residential property.”

Subject: French News