Grim French growth outlook a new blow for Hollande

GMT 08:47 2014 Saturday ,09 August

Arab Today, arab today Grim French growth outlook a new blow for Hollande

French President Francois Holland
Paris - AFP

Gloom over the French economy deepened on Friday with a grim forecast from the central bank, in a new blow to the Socialist government of President Francois Hollande.

The bleak outlook for gross domestic product coincided with poor industrial production data, the latest in a string of indicators suggesting that France is a laggard in a generally weak eurozone recovery.
The Bank of France said it expected the economy to grow by 0.2 percent in the third quarter compared with the previous three-month period.
Economists estimate that second-quarter figures will show almost zero, or even negative, growth, after flat growth in the first three months of the year.
If these estimates are borne out, the  government will have no hope of achieving its target for 1.0-percent growth for the full year.
That would hold back tax revenues and add to the government's already deep difficulties in meeting promises to the European Union to curb its budget deficits.
In the last eight days, both Hollande and Prime Minister Manuel Valls have sent strong signals of concern about the outlook.
Economists have warned for months that France, struggling to apply deep reforms, looks increasingly like the weak link in the eurozone and could even slip back into recession, as Italy did unexpectedly this week.
- French bond rates fall -
However, borrowing rates on French bonds, a vital measure of confidence, fell to record lows on Friday.
But analysts said the decline reflected the risks of tension over Iraq and Ukraine, and a flight of funds towards the safety of eurozone bonds.
The central bank's latest forecast was based on a monthly survey of businesses which reported that their output had edged up in July but would be flat in August.
The latest industrial output figures from the national statistics institute INSEE showed that activity slowed in the second quarter and is unlikely to rebound much in the third quarter.
Industrial activity picked up by 1.3 percent in June, but for the whole of the second quarter output fell by 0.5 percent from the first-quarter.
These are deeply worrying figures for the government.
This week Hollande urged Germany to use its strong trade surplus to boost demand from its businesses and consumers.
The French argument, which carries no weight in Germany, is that this would suck in more imports from other eurozone countries, notably France.
And last week, Valls lashed out at the eurozone and the European Central Bank, saying that their policies were not working fast enough to underpin recovery and reduce unemployment, which is running at record highs in France.
He warned that France should be ready for "difficult" economic times later this year.
The president of the European Central Bank, Mario Draghi, acknowledged on Thursday that eurozone recovery was slowing and would remain "weak, fragile and uneven".
The bank held its key rate at the record low level of 0.15 percent, and Draghi said that policy would remain supportive and the euro could fall.
That would push up worryingly low inflation, the ECB's main concern, but France complains that it wants the euro to fall to help exporters.
- Trade deficit -
France has developed a huge structural trade deficit in the last 10 years, which analysts say reflects falling competitiveness.
The latest French trade data on Thursday was also gloomy. The deficit, an excess of imports over exports, increased in June, taking the first-half shortfall to 29.2 billion euros ($39 billion).
A trade surplus generates growth in an economy, but a structural deficit signals weakness and can push up a country's borrowing costs.
Trade Minister Fleur Pellerin said the deficit showed an improvement and she expected a full-year deficit of 53 billion euros from 60 billion euros last year.
But analysts said that much of the improvement reflected a fall of imports, a sign of weak internal demand.
In London, Capital Economics said the outlook for French industry "remains very weak", having commented at the end of July that France was in "recessionary territory".


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