Research Dept. News
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Monthly Report, num 331 - January 2010
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European Union - France
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France embarks upon a fragile recovery
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French growth will be moderate during 2010.
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«The French economy will continue to grow at a moderate rate during the first half of 2010». This is the message transmitted by the French Statistics Institute (INSEE) in its latest report on the quarterly situation. France was one of the first developed countries to come out of recession, specifically in the second quarter of 2009, and one of the least affected by it. However, the weakness of the factors underlying this upswing has led to doubts regarding whether recovery can be sustained.
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Unlike other European economies such as Germany, during the last expansionary period France based its growth on solid domestic demand. In the coming quarters, this is expected to take a leading role in growth, particularly regarding public and private consumption. Consequently, according to the INSEE, public consumption will grow in the first half of 2010 to levels similar to those seen in the third quarter last year, namely 0.7% quarter-on-quarter.
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The rise in unemployment may hinder growth in private consumption.
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With regard to private consumption, the most frequent indicators available in the last quarter of 2009 show clear improvement and household consumption was up 1.1% month-on-month in October. It is worth noting the important role played by automobile registrations in this period, with year-on-year increases of 25% and 42% in October and November respectively. Given this situation, consumer confidence improved again in November, both in its present and future component, indicating the increase in private consumption in the last quarter of 2009. However, this recovery is not trouble-free. The decline in the French labour market, reaching an unemployment rate of 10.1% in October, might be an additional obstacle to growth in household consumption.
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On the other hand, foreign demand made a significant contribution to economic growth in the third quarter of 2009. However, everything suggests that this will continue to lose significance in the coming year. The end of stimuli for the purchase of automobiles in some European countries and the tardy recovery of two of France's main trading partners, namely Spain and the United Kingdom, widened the trade deficit in October 2009.
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Private investment will remain limited in the coming quarters.
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Given this weak demand, supply indicators have not managed a strong upswing. Consequently, in October industrial production fell for the second consecutive month, down 0.8% month-on-month, pressurized by the slump in automobile production. In spite of this, industrial confidence grew again in November, although this will not prevent further reductions in private investment throughout 2010 due to the low utilization of production capacity in France.
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French public accounts will continue to decline in 2010.
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In order to avoid stagnation in investment, Sarkozy's government decided to allocate 35,000 million euros to promote research and innovation projects that would otherwise have problems securing private funds in the present climate. However, this undertaking must not be seen as the same as other economic stimulus measures announced to date, as its aim is to increase economic growth in the long term. This, however, has not saved it from the criticism of different supranational bodies such as the Organization for Economic Cooperation and Development, which believes such action has come too late and is too imprecise. Moreover, most of this plan will be financed by issuing new debt, which will harm the French public accounts even further, endangering the fiscal consolidation in 2013 that has been demanded by the European Union.
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