France to eke out 0.1% growth

The French economy is set to eke out growth of 0.1 percent in the second quarter of this year, the Bank of France said on Monday, after entering recession in the first quarter. But despite the gloom generally clouding the prospects for growth and unemployment this year, other official data showed that output by French industry rallied sharply in April, by 2.2 percent from the March level when it fell by 0.6 percent. The rebound in April was pulled largely by the auto sector, an important industry in France which has been hard hit by weak economic activity in France and the eurozone. The performance of the French economy and the progress of structural reforms are being watched closely in the eurozone. Growth, and related tax revenues, are of critical importance for the Socialist-Green government led by President Francois Hollande, elected a year ago with a promise to boost industry, growth and employment. France is running a big structural trade deficit, which saps growth, and the government has launched policies to raise the competitive position of French industry. Unemployment has risen to a new record level but Hollande says the trend will turn by the end of the year. The meagre growth forecast from the Bank of France was in line with its last forecast. In the first quarter, France entered the second recession in four years. The outlook from the central bank is the same as the forecast from the national statistics institute INSEE which reported the data on the industrial production upturn. The European Commission expects that the French economy will be in recession this year, with gross domestic product contracting by 0.1 percent. However, in May the government stood by its forecast that the economy will grow by 0.1 percent this year. The Bank of France based its growth estimate on confidence in industry and the services sector, and its surveys showed that business leaders expect activity to firm in June. The industrial data from INSEE showed that output by the manufacturing sector, excluding the energy and mining sectors, rose particularly firmly in April, by 2.6 percent after a setback of 0.7 percent in March. Industrial output for the three months from February to April, rose by 0.9 percent from output in the previous three months. But industrial output was 1.8 percent below the level in the same period of last year. At ING Bank Global Economics in London, analyst Julien Manceaux commented that French industrial output had shown "an unexpectedly strong rebound in April" returning to the level in 2010 but that on a 12-month comparison, industrial production was still contracting. Referring to the outlook for business as a whole, he said that "any durable activity rebound is unlikely before the second half of the year, let alone a reversal of the unemployment trend."