Saturday 13 August 2011

French economy stagnates as consumers cut spending

Eurostat data shows French GDP was flat in the second quarter
Nicolas Sarkozy
French president Nicolas Sarkozy must convince financial markets
that he can meet his fiscal targets. Photograph: Eric Feferberg/AFP/Getty Images

The French economy failed to grow in the last quarter as households across the country cut their spending, in the latest sign that the European economy is stumbling.

Data released by Eurostat, the region's statistics body, on Friday showed that French GDP was stagnant between April and June. Economists had expected the economy to grow by around 0.3%.

Household consumption in France fell by 0.7% compared with the first three months of 2011, increasing the pressure on president Nicolas Sarkozy to convince financial markets that he can meet his fiscal targets. Sarkozy has promised to release revised plans to cut France's budget deficit within days.

Other economic data released on Friday also painted a poor picture. Hong Kong's GDP declined by 0.5% between April and June. The Greek economy shrank by 6.9% on a year-on-year basis during the three-month period – quarter-on-quarter data was not available.

Portugal was also in the spotlight, as officials from International Monetary Fund, European commission and European Central Bank examined the country's progress since taking financial assistance in 2010. The joint mission predicted that the Portuguese economy will shrink by around 2.2% this year, with recovery pencilled in for early 2013.

Separately, disappointing industrial production data suggested that Europe is running out of steam. Production across the eurozone declined by 0.7% in June, compared with May.

Christoph Weil, a senior economist at Commerzbank in Frankfurt, warned that there had been a "strong economic deceleration" across Europe in recent months.

"We're depending on Asia. Risks that we'll slip into another recession have increased," said Weil, according to Bloomberg.

The UK economy, though, may have grown more rapidly than the 0.2% expansion reported last month. Figures released on Friday morning showed that output across the construction sector rose by 2.3% between May and June compared with the first quarter of 2011, rather than by 0.5% as previously thought.

France stands firm

Finance minister François Baroin said the French government had no plans to change its targets for GDP growth on the back of one quarter's data. He also pointed out that France's economy had grown by 0.9% in the first three months of 2011.

"For this year we are in line [with targets]," Baroin told French radio.

In contrast, the UK economy grew by 0.5% in the first quarter of 2011, and 0.2% in the second.

Baroin also insisted that France's banks were among the safest in the world, just hours after regulators banned traders from short-selling certain financial stocks in France, Italy, Spain and Belgium. Despite this move, shares in Société Générale and BNP Paribas fell by more than 3% in early trading.

France has also denied that its AAA credit rating is at risk.

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