Bloomberg News

French Growth Stalls, Sets Challenge for Hollande

May 15, 2012

French growth stalled in the first quarter, underscoring the challenge incoming President Francois Hollande faces to revive the economy while also trimming the budget deficit.

Gross domestic product unchanged from the fourth quarter, when it expanded a revised 0.1 percent, Paris-based national statistics office Insee said today. That was in line with the median of 25 economist forecasts gathered by Bloomberg News.

For Hollande, who will be sworn into office later today, the figures highlight France’s struggles in the third year of the sovereign-debt crisis. While the region’s second-largest economy has avoided a double-dip recession, joblessness at a 12- year high and debt approaching 90 percent of GDP leave Hollande little room for maneuver.

“The new government faces a high-wire act,” said Michel Martinez, an economist at Societe Generale in Paris. “A hardening budget stance will only make things more difficult in the months ahead.”

Output rose 0.3 percent from a year earlier, down from a revised 1.2 percent increase in the previous quarter.

Hollande won office last week pledging both to focus on growth and justice and to meet France’s commitment to reduce its budget deficit to 4.4 percent of GDP this year and 3 percent next year. The European Commission said last week that France will have to find further savings or tax increases if the goals are to be reached.

Tax increases and spending cuts implemented by Sarkozy’s government last year are starting to be felt by consumers now. That’s damping demand from households just as France’s neighbors are also cutting back, hurting demand for exports.

“Too heavy tax increases could cause growth to falter,” Martinez said.

The French economy will expand about 0.5 percent this year and 1.3 percent in 2013, the commission forecast. The government predicts growth of 0.7 percent in 2012 and 1.75 percent in 2013.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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