Bloomberg News

French Economy Stagnates as State Spending Prevents Recession

October 04, 2012

The French economy will fail to grow in the second half, extending stagnation to five quarters, national statistics office Insee predicted yesterday.

Gross domestic product will be unchanged in the third and fourth quarters, with corporate investment, household spending and foreign trade all broadly flat, Insee said in a report. Government spending is preventing the nation from falling into recession.

The report, entitled “At a Standstill,” underlines the challenge to President Francois Hollande as he struggles both to contain the budget deficit and improve competitiveness in Europe’s second-largest economy. After two more quarters in which GDP has stalled, France will have posted five with no growth following two with expansions of 0.2 percent or less.

“The business climate remains morose, both in industry and services,” Insee economist Jean-Francois Ouvrard told journalists in Paris. “Investment has been losing momentum since last year and will drop off toward the end of the year.”

Under such a scenario, the French economy will post an annual gain of 0.2 percent in all of 2012, less than the 0.3 percent predicted by the government.

In order to achieve Hollande’s 2013 growth forecast of 0.8 percent, growth will have to be about 0.3 percent in each of the four quarters next year, a rate of expansion not achieved since the first quarter of 2011.

The principal support for the economy in the final quarters of this year will be government spending, according to Insee forecasts. State expenditure will add 0.3 percentage points to GDP in both quarters as the nation’s welfare system compensates for rising joblessness.

Hollande has promised to hold spending growth over the next five years to 0.7 percent annually, less than over the previous decade. “Government spending continues to increase, though less quickly than in the past,” Insee’s economist Cedric Audenis said.

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

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Vidya Root at vroot@bloomberg.net


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