Research Dept. News
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Monthly Report, num 354 - February 2012
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European union - France
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The French economy, going through a bad patch
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Our growth forecast for French GDP in 2012 is downgraded to 0.1%.
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After posting 0.3% quarter-on-quarter growth in the period July-September, revised downwards by 0.1 points, the French economy probably shrank slightly in the fourth quarter according to available indicators, and might continue to shrink during the first few months of this year. In a context in which the economic climate indicator is still slightly below the normal level and in which there are still problems of competitiveness, and also because of a certain slowdown in the global economy, we have revised downwards our growth forecast for French GDP to 0.1% for 2012. The risks are mostly downwards, given the notable interrelation with countries on the periphery of the euro area, affected in turn by the sovereign debt crisis.
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From the point of view of demand, consumption is weakening. Consumer confidence stabilized in December but at a very low level. This pessimism is partly due to the bad performance by the labour market. The unemployment rate shows a slightly upward trend and is approaching 10%. The inflation rate isn't any cause for joy either as, in December, this stood at its highest level for the year, namely 2.5%. However, it is likely to take a downward turn in 2012.
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The ratings agency, Standard & Poor's, withdraws its top rating for long-term French sovereign debt.
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Supply also seems to be going through a bad patch. In the period September-November, industrial production fell by 1.0% compared with the previous three months, posting a year-on-year rise of 1.1% on the same period the previous year. Although, in December, the activity of the secondary sector improved slightly, the short-term outlook is not too favourable as industrial orders decreased by 2.3% in terms of value in September-November compared to the previous three months.
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Services picked up slightly in December. Tourism also posted a year-on-year rise in October thanks to French visitors. However, the indicator for the economic climate of the tertiary sector was appreciably below its historical average in December.
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Within this context, the credit rating agency Standard & Poor's downgraded France's sovereign debt rating together with a further eight European countries at the end of the second week in January. In the case of France, the cut was just one notch, to AA+. This measure had already been assumed by the market and the risk premium for France's long-term sovereign debt compared with its German equivalent remained at around 129 basis points at the start of the third week in January, far from the peak of 189 basis points since the euro was launched, reached in mid-November. On the other hand, agencies Moody's and Fitch have kept the top rating for French sovereign debt.
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The French government adopts urgent measures to tackle deterioration in the labour market.
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The tensions in financial markets are gradually affecting credit to the private sector. In the fourth quarter, while the demand for financing in industry grew more sharply than in the previous quarter, the financing obtained rose more moderately than the demand for credit. Credit to the private sector also slowed up in November. Credit to non-financial firms advanced by 4.5% in the last twelve months, 0.9 points less than in October, while credit for households rose by 6.8%, half a point below the previous rate.
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In this context, and three months from the presidential elections, the government adopted urgent measures to tackle the deterioration in the labour market. It will therefore be easier for companies to reduce working hours when they are in difficulty, the employment of young people by microfirms will be encouraged and training will be improved for the long-term unemployed. Moreover, a reform is being prepared for professional training in line with the economy's needs in order to improve competitiveness.
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