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France

Economy to shrink 1.5% in first quarter

Latest update : 2009-03-20

France's statistics institute, INSEE, has forecast that the country's economy will contract by 1.5% in the first quarter of 2009 and by 0.6% in the second. The unemployment rate is expected to edge up by one percentage point to 8.8%.

AFP - France will slide deeper into recession in the first quarter of 2009 as the global economic slump sees job losses accelerate, the national statistics institute INSEE said in figures released Friday.

The French economy contracted 1.2 percent in the fourth quarter of 2008 and will shrink 1.5 percent in the three months to March, a regular INSEE report said.

The country should then recover slightly, with the economy contracting 0.6 percent in the second quarter this year as French and other stimulus packages begin to get some traction and ease the global economic crisis, it said.

The figures would mean that for all of 2009 the economy would shrink 2.9 percent, assuming zero gain in both the third and fourth quarters.

INSEE did not provide growth forecasts for the last half of 2009.

Finance and Economy Minister Christine Lagarde told parliament on Wednesday that the economy would contract 1.5 percent this year before returning to growth of 1.0 percent in 2010.

"This estimate is surrounded by numerous uncertainties linked to the international (economic) environment," Lagarde said, adding that 290,000 jobs could be lost in 2009.

For the government's 2009 forecast of a 1.5 percent contraction to be correct, the economy would have to grow 1.9 percent in each of the last two quarters of the year, said Eric Dubois, head of forecasts at INSEE.

Despite the expected downturn, France is likely to do better than most of its peers, INSEE said, estimating the US economy will shrink 2.9 percent this year, the eurozone 3.6 percent, Germany 4.9 percent and Japan 6.5 percent.

INSEE said the most visible result of the crisis will be massive job losses, at double the pace seen in the last major recession in the 1990s, with the unemployment rate jumping to 8.8 percent in the first quarter from 7.8 percent in the fourth.

Household consumption should stay positive, however, growing 0.6 percent over the first half of 2009 compared with 1.3 percent for all 2008 and the average 2.5 percent in the previous two years.

Deflation will more than offset a 0.6 percent fall in income in the first quarter, with purchasing power up 0.7 percent, helped also by various economic stimulus measures.

Overall, government stimulus plans will have only a very small impact on the first quarter, Dubois said.

Date created : 2009-03-20

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