French economy shows zero growth in Q2

August 14, 2012


Night view of the Arc de Triomphe in Paris, capital of France/XINHUA
PARIS, Aug 14 – The French economy managed zero growth in the second quarter of 2012, data showed Tuesday, beating expectations it would begin a slide into recession.

In its first flash estimate for the second quarter, the national statistics institute INSEE said that French economic growth was flat. That confounded expectations by many economists including the Bank of France that slowdown plaguing much of the eurozone would push France into recession.

A recession is commonly defined by economists as two consecutive quarters of contracting activity, but the Bank of France in its latest survey last week forecast a 0.1 percent contraction in the third quarter.

Eurostat was to later release its flash second quarter estimate for the eurozone, which posted flat growth in the first quarter.

Germany was also to report second quarter figures.

Italy said last week its economy shrank by 0.7 percent in the second quarter.

France emerged from its last recession in the spring of 2009 but the economy has since struggled to gain momentum as the eurozone debt crisis has intensified.

Uncertainty over the fate of the euro and related problems in credit markets have resulted in investors either cancelling or delaying major spending decisions.

Meanwhile consumers in eurozone countries have been hit as governments cut spending and raise taxes to reduce the deficits and debt that are behind the eurozone crisis.

The French construction and automobile industries have been hit particularly hard. New housing starts in the second quarter were 14 percent below 2011 levels while July car sales were down 7.0 percent on a year earlier.

With these job-intensive sectors struggling, unemployment has spiked.

Latest figures put the jobless total at nearly 10 percent of the workforce with a further 5.0 percent working fewer hours than they would like.

Faced with an economy deteriorating on almost every front, the new Socialist government was last month forced to cut its growth forecast for the full year from 0.4 to 0.3 percent, and from 1.7 to 1.2 percent for 2013.

Even the revised prediction however is considered optimistic by the International Monetary Fund (IMF) and the Bank of France.

Elected in May on a jobs and growth ticket, President Francois Hollande faces an increasingly tough battle to deliver while simultaneously meeting a commitment to reduce France’s budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013..

Before embarking on their holidays, government ministers were issued with spending ceilings for the next 12 months which will require major cuts in all but a handful of departments.

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