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France heading back towards recession

Text by News Wires

Latest update : 2012-08-08

The Banque de France warned Wednesday that it expects France's GDP to contract by 0.1 percent in the third quarter, following a similar fall in the second quarter. If confirmed, it would officially bring the country into recession.

AFP - France is headed back into recession for the second time in three years, its central bank warned Wednesday in a setback for the recovery prospects of the stricken eurozone.

In a downbeat survey of the outlook for Europe's second biggest economy, the Bank of France predicted a 0.1 percent contraction in gross domestic product (GDP) for the third quarter of this year.

If that outcome is confirmed it would follow a similar fall in output for the three months to June and zero growth in the first quarter of 2012.

France is also grappling with a trade deficit running at close to record highs, despite shrinking in the first half of the year.

Imports outstripped exports by 34.9 billion euros ($43.2 billion) in the first half of the year, down from 38.2 billion in the first six months of 2011.

Trade Minister Nicole Bricq said the figures reflected a weakening world economy and the crisis in Europe.

But she added: "That said, they also reflect a problem with the competitiveness of our businesses. We need far more businesses and we need much stronger businesses."

The Bank of France's survey followed worse-than-expected data from neighbouring Italy and Germany earlier this week.

Italy reported Tuesday that second-quarter GDP was 2.5 percent lower than a year earlier while German industrial orders dropped 1.7 percent in May, largely as a result of slumping demand from within the 17-member eurozone.

The gloomy data have dampened a wave of optimism that an end to the eurozone crisis could be in sight.

European stock markets have rallied strongly over recent days on a growing confidence that eurozone politicians and bankers will do what is required to ensure the survival of the currency.

France emerged from its last recession -- defined by economists as two consecutive quarters of contracting business activity -- in the spring of 2009.

The economy has since struggled to gain momentum in the face of the eurozone debt crisis, which has sapped business and consumer confidence.

Uncertainty over the fate of the euro and related problems in credit markets have resulted in consumers and investors either cancelling or delaying major spending decisions.

This has hit the construction and automobile industries in France particularly hard. New housing starts in the second quarter were 14 percent below 2011 levels while July car sales were down 7.0 percent on a year earlier.

With these job-intensive sectors struggling, unemployment has spiked.

Latest figures put the jobless total at nearly 10 percent of the workforce with a further 5.0 percent working fewer hours than they would like.

Faced with an economy deteriorating on almost every front, the Socialist government was last month forced to cut its growth forecast for the full year from 0.4 to 0.3 percent, and from 1.7 to 1.2 percent for 2013.

Even the revised prediction however is considered optimistic by the International Monetary Fund (IMF) and the Bank of France's latest survey will have made uneasy summer holiday reading for President Francois Hollande.

Elected in May on a jobs and growth ticket, Hollande faces an increasingly tough battle to deliver while simultaneously meeting a commitment to reduce France's budget deficit in line with eurozone requirements.

Before embarking on their holidays last week, government ministers were issued with spending ceilings for the next 12 months which will require major cuts in all but a handful of departments.

France is seeking to reduce its public deficit -- the shortfall between revenue to spending -- from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013.

Date created : 2012-08-08

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