Insee Sees French Economic Contraction Ending in Fourth Qua
News Article Date: Monday 29th of June 2009
France’s economy, the second largest of the 16 countries sharing the euro, may stop shrinking in the fourth quarter, statistics office Insee said.
Gross domestic product will probably stagnate in the last three months of the year after contracting 0.6 percent in the second quarter and 0.2 percent in the third quarter, the institute predicted. For the year, GDP may shrink 3 percent, the most since 1949, it added.
“France may be done with the recession at the end of 2009,” Insee’s chief forecaster Eric Dubois said at a briefing in Paris yesterday. At the same time, the slump “has left companies with overproduction and staff capacities that could slow down the exit from the recession.”
France’s deficit may reach a record this year as the government increases spending to battle the slump and revenue wanes. Even with the crisis easing, unemployment is set to continue rising, with companies cutting almost 700,000 jobs this year, Insee estimated.
The forecaster said that recent inventories cuts, which accentuated the contraction, may come to an end. Companies would also slash investment at a slower pace as the outlook for exports brightens and financial conditions improve, it said.
French Finance Minister Christine Lagarde in an interview in Frankfurt yesterday urged caution over signs that the recession in Europe is easing.
“I’m very cautious with the words ‘green shoots’ because I’m a gardener at heart,” she said. “I know how much fertilizer and water and sun are needed to develop green shoots into nice flowers. There are little signs here and there, but I wouldn’t say growth is back and everything is normal.”
French industrial production declined faster than economists forecasted in April and non-farm payrolls decreased at the most in four decades in the first quarter.
Caterpillar Inc.’s French unit eliminated 733 jobs in two factories and Freescale Semiconductor Inc., the U.S. computer chipmaker owned by private-equity firms led by Blackstone Group LP, is cutting 800 to 1,000 jobs at its site in Toulouse in the south of France.
Consumer spending, while losing pace, may still grow as welfare payments and slowing inflation buoy income, according to Insee. It may increase 0.7 percent this year, from 0.9 percent in 2008, it said.
The institute sees corporate investment dropping 1.3 percent in the fourth quarter after a 2.3 percent decrease in the preceding three months and a 2.7 percent decline in the current quarter. A drop in exports may also ease to 0.8 percent in September-December from 1.8 percent in the third quarter and 3.8 percent in April-June, it said.
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