Sudden slowdown in French growth

The French economy has suddenly slowed down but is still creating jobs, official data indicates, but analysts warn that the country has a deep trade problem of weak competitiveness.

The French economy has suddenly slowed down but is still creating jobs, official data indicates, but analysts warn that the country has a deep trade problem of weak competitiveness.

The economy is expected to show growth 0.4 percent in the second quarter, the Bank of France said, after growth of 1.0 percent in the first quarter.  

This latest signal on growth comes the day after trade data showed a record deficit and prompted renewed warnings from analysts that France is building up structural competitive weaknesses.

An economics professor at Sciences-Po, Philippe Martin, said that the trade deficit arose from a “structural competitivity problem in French industry” as well as the strength of the euro.

But employers and trades unions, in a sign that ideological confrontation in the French economy is shifting, have produced a joint report on competitiveness identifying labour costs and also wider productivity issues as a drag on the economy.

France, fighting for recovery from the economic crisis and to keep up with export-driven growth in Germany, where there are also signs of faltering, is counting on growth of at least 2.0 percent this year, a target which the European Union warns is unduly optimistic.

The centre-right government under President Nicolas Sarkozy faces a presidential election a year from now and is working both for recovery and growth and to reduce high unemployment, while also cutting the public deficit to contain rising debt.

Internal consumption is particularly important to growth in France.

In the first quarter, when the economy was recovering quickly, the economy created 58,200 mostly permanent jobs in the market-driven sector, indicating that employment was “becoming more stable”, the head of the public employment agency, Christian Charpy, said in a radio interview.

This partial employment data is in line with official unemployment statistics a week ago showing that the unemployment rate in the first quarter fell slightly to 9.2 percent from 9.3 percent.

One important dividend from this emerged in figures for the main social security budget on Thursday showing that the projected deficit for the year would fall by 1.4 billion euros to 19.5 billion euros ($28.5 billion).

This reflects mainly a switch of people from benefits to employment and making welfare contributions.

In France the social welfare budgets as a whole are substantially bigger than the central government budget, and therefore a big component of the critically important public deficit.

But the structural trade deficit is a drag on growth.

Data on Wednesday showed a record trade deficit in April of €7.14 billion ($10.46 billion), caused in part by the purchase of two big aircraft and a surge in purchases of refined oil products.

But analysts say there is a deep underlying problem. France is building up deficits where it used to have surpluses, in autos and pharmaceuticals for example, and broadly lags far behind Germany in the number of medium-sized companies which in any case tend not to be sufficiently positioned on high quality niche products. 

“The important point is that exports aren’t progressing even though world growth is strong, said Nicolas Bouzou, an analyst at consultants Asteres.

Competitiveness was the theme of the report by employers and unions which, they said, went beyond “ideological approaches”.   

The report was a break with past attitudes, it said which had been characterised by a belief that “for one side, labour costs are the cause of all problems, for the other shareholder long term vision (is the problem).”

Union official Joseph Thouvenel said: “If we compare with the Germans, while our salaries are about the same, they went towards new markets, have a whole offer of services. We’ve only played with low prices leaving us little margin, no research or development,” he said.

For the employers’ organisation, Pierre Fonlupt said: “We’re anything but defeatist.”

He said: “We realise that yes, there’s a certain number of problems to solve, but that France also has a lot of attributes to hold its place competitively.”