France heads into recession

PARIS - Agence France-Presse

Shoppers are seen walking in the streets of Paris in this June photo. The uncertainties concerning the fate of the eurozone is axing both consumer and investors confidence on the continental Europe. EPA photo

France is headed back into recession for the second time in three years, its central bank warned yesterday in a fresh blow to the recovery prospects of the stricken eurozone.

In a gloomy survey of the outlook for Europe’s second biggest economy, the Bank of France predicted a 0.1 percent contraction in gross domestic product (GDP) for the third quarter of this year.

If that outcome is confirmed it would follow a similar fall in output for the three months to June and zero growth in the first quarter of 2012.

France emerged from its last recession -- defined by economists as two consecutive quarters of negative growth -- in the spring of 2009.

Confidence drops

The economy has since struggled to gain momentum in the face of the eurozone debt crisis, which has sapped business and consumer confidence.

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

This has hit the construction and automobile industries in France 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 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’s latest survey will have made uneasy summer holiday reading for President Francois Hollande.

Elected in May on a jobs and growth ticket, Hollande faces an increasingly tough battle to deliver while simultaneously meeting a commitment to reduce France’s budget deficit in line with eurozone requirements.

Before embarking on their holidays last week, government ministers were issued with spending ceilings for the next 12 months which will require major cuts in all but a handful of departments.
France is seeking to reduce its public deficit -- the shortfall between revenue to spending -- from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013.