Bloomberg News

Hollande Economic Recovery Elusive as French Face Taxes, Cuts

May 13, 2014

President Francois Hollande

President Francois Hollande said in a radio phone-in program last week, “When I say things are turning it’s because they are. We have taken measures that will bring us results.” Photographer: Sean Gallup/Getty Images

President Francois Hollande has sought to defray voter angst about rising taxes and spending cuts by predicting that France’s economic recovery is now at hand. Problem is, that rebound is nowhere in sight.

Gross domestic product probably advanced just 0.1 percent in the first quarter, according to the median of 28 forecasts gathered by Bloomberg News. The official figures are due out tomorrow, the same day that public sector workers are planning to protest a wage freeze in place since 2010 and less than a week before the French have to file their tax returns, with many having to cough up more than before.

The economic struggle has translated into record low popularity ratings for the Socialist president, who took office two years ago and has three years until the end of his term. An OpinionWay poll this week showed that just 18 percent of voters approve of his performance, an all-time low. French joblessness remains at a record of more than 3 million.

“Hollande is waiting for the rain to stop,” said Antonio Barroso, an analyst at Teneo Intelligence in London. “He realizes that the only way he can survive is if the unemployment curve inverts and the economic data show some sort of recovery.”

In a radio phone-in program last week, Hollande said the turning point has arrived after two years of almost no growth.

“When I say things are turning it’s because they are,” he said on RMC radio. “We have taken measures that will bring us results.”

For now, economists don’t see those results and voters have yet to feel them. Bank of France said this week its manufacturing confidence index fell 1 point to a seven-month low.

Lagging Behind

The data raise “further concern about the French economy’s capacity to rebound,” said Fabrice Montagne, an economist at Barclays in Paris who trimmed his GDP growth forecast for the first quarter to 0.1 percent and his full-year prediction to 1 percent. “French GDP is likely to compare poorly with other countries as of the beginning of 2014.”

Barclays expects French growth to lag behind that of Europe’s other four big economies in the quarter. The bank sees expansions of 0.7 percent in Germany, 0.4 percent in Spain and 0.2 percent in Italy. In the U.K., GDP surged 0.9 percent in the first three months of the year.

Voters are feeling the brunt of Hollande’s deficit-reduction plan in the form of higher taxes. French taxes increased by about 70 billion euros ($96 billion) in the last three years. Government levies amount to more than 46 percent of GDP, the highest in the euro area. The weight of the increases is being felt now as voters prepare their 2013 tax filings, for which the first deadline is May 20.

Strike Planned

Hollande has promised no further increases in taxes and, in an attempt to head-off complaints, Prime Minister Manuel Valls is now promising to reduce payments for 650,000 of the lowest-paid workers.

“The level of taxes in our country has become intolerable,” Valls said in the National Assembly. “Too much tax, kills tax” receipts, he said on the evening newscast of TF1 television May 11.

Hollande and Valls have pledged to cut government spending by 50 billion euros before the next presidential election. That plan is riling parts of the electorate, notably state employees who will have a wage freeze that began in 2010 extended until 2017.

Seven unions have called for marches across France tomorrow in protest.

“Austerity policies have been weighing on us for years,” the UNSA CDC union said on its website. “Employees, public and private, are losing purchasing power,” it said.

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 Vidya Root, Jim Silver


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