A report released by OECD warned that the growth of the country is falling behind southern European countries that have cut labour costs to induce growth.
15th November 2013
The French economy contracted by 0.1 percent, negating the prospects of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters. France is becoming a focus of concern, even as, The Bank of France predicts the economy will expand by 0.4 percent in the last quarter of the year, but the government’s labour and pension reforms are widely viewed as too timid. A report released by OECD warned that the growth of the country is falling behind southern European countries that have cut labour costs to induce growth. “To reduce the economic lag and lost time, France needs to keep up structural reforms,” OECD chief Angel Gurria said.
Exports falling drastically
When France was growing at the rate of 0.5 percent in the second quarter of the year, it pulled the country out of recession, although economists had not expected the level of growth to be sustained. Figures from the national statistics agency, Insee showed that exports dropped by 1.5 percent in the third quarter, while business investment fell by 0.6 percent. Despite the falling growth, France’s finance minister, Pierre Moscovici, said he still believed the economy would grow by 0.1-0.2 percent over 2013 as a whole. “The productive forces are starting up again, production is recovering,” Mr Moscovici was quoted, speaking to a French radio. Industrial production declined by 0.6 percent from the previous month, when it dropped 1.4 percent as per the national statistics office. Manufacturing output declined by 0.7 percent, trailing estimates of 0.4 percent. Annual manufacturing production also declined 1.3 percent from a revised 2.7 percent.
“It’s not a surprise, it’s not an indicator of decline, it’s not a recession. ” he said.
The data comes as a blow to President Francois Hollande, who is being criticized for shelving a 15.5 percent charge on home loan, employee and equity savings plan, applied from 1997. The socialist President has resorted to increasing taxes to narrow the country’s budget gap . Hollande’s ratings in polls have sunk, making him the country’s most unpopular President.
If France reports negative growth in the fourth quarter, it will be back in recession. Economists generally define recessions as two successive quarters of negative GDP. In a note, ING said the French GDP figures confirm its view that France will report zero growth in 2013, after a year of stagnation in 2012. It expects a French growth rate no higher than 1.1 percent in 2013, a figure considered too weak to bring down its 11 percent unemployment rate quickly.
France is Europe’s second largest economy, after Germany. If its recovery remains weak, it would hamper the Euro zone’s efforts to reduce the unemployment rate, which is at a record high of 12.2 percent.