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The Associated Press October 22, 2010, 11:41AM ET

Strikes take toll on fragile French economy

The complete shutdown of France's refineries and a rolling transportation strike that has disrupted life for almost two weeks couldn't have come at a worse time for the country's economy.

Economic arguments make up the backbone of French President Nicolas Sarkozy's case for reforming the money-losing pension system, which is piling up billions of euros (dollars) in deficits while France's debt reaches unprecedented heights.

Sarkozy says France can no longer afford its system of generous benefits for people to retire at 60, and that pushing retirement back by two years is necessary if France is to get its finances in order. The country is obliged by European Union rules to bring its deficit down to 6 percent of GDP next year and to 3 percent by 2013, from a forecast 7.7 percent this year.

But in the short term, the unrest stirred up by opposition to Sarkozy's reform is also hurting the economy in ways both large and small.

The total economic impact is still being tabulated in government offices, but officials and economists have started attempting estimates.

Employment Minister Laurent Wauquiez said this week that 1,500 jobs have been destroyed daily since the strikes began in earnest on Oct. 12, though he did not elaborate on how the figure was extrapolated. Laurence Parisot, the head of France's MEDEF business lobby, said she was "very worried and concerned" about the impact of the blockages for small companies.

Overall the strikes may wipe off 0.1 to 0.2 percentage points from French growth, said Marc Touati, head economist at Global Equities brokerage house in Paris.

The eurozone's second largest economy grew only 0.7 percent in the second quarter, after a meager 0.1 percent in the first quarter. The government has cut its forecast for annual growth next year to 2 percent from 2.5 percent previously.

"While it is certainly too early to draw definitive conclusions, it's clear that business confidence is going to resume its strong decline," Touati said in a research note.

That could exacerbate the expected slowdown in growth -- both in France and globally -- due to austerity measures being enforced to deal with the public debt piled on during the financial crisis.

The economist also noted the hit that France's image was taking internationally, "with all the negative consequences that generates in terms of foreign investment."

Travel and tourism, one of France's flagship industries, is particularly exposed to the strikes. Air France has estimated the cost of one strike day at euro5 million ($7 million), bringing the total for the six national strike days since early September to euro30 million. Unions have called for another day of national strikes and protests Oct. 28.

Gas stations have also been hurt by the fuel shortages as refineries have shut down and strikers have blocked fuel depots. Christian Roux, president of a service station owners' lobby, estimated Friday that the strike has cost its members euro10,000 each so far.

"That's a quarter of their annual revenue that they've lost," Roux said.

On Friday, France's environment minister Jean-Louis Borloo estimated that about 20 percent of France's service stations had run out of fuel, down from 40 percent earlier in the week before the government began unblocking depots.


Associated Press writer Cecile Brisson in Paris contributed to this report.

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