Monday 27 February 2017

No Q2 growth puts spotlight on France

economy

Siobhan Creaton

New figures show the French economy has ground to a halt, achieving no growth in the second quarter of this year.

The bad news will put further pressure on the French government to accelerate its austerity measures to ease market concerns about meeting its debt-reduction targets.

Official figures recorded that economic growth measured by gross domestic product (GDP) was zero between April and June, compared with a 0.9pc increase in the previous three months.

The decline was mainly triggered by a fall in household spending, which was down 0.7pc.

The French government will be worried about this sharp drop in consumer spending as the economy is heavily dependent on domestic consumer demand for goods and services.

It also follows rumours about the health of French banks amid fears the country would lose its AAA credit rating, which proved unfounded.

Commenting on the disappointing news yesterday, French Finance Minister Francois Baroin said it was no surprise after a strong start to the year.

He said the government would not downgrade its growth forecasts and would meet its debt-cutting goals after President Nicolas Sarkozy ordered his ministers this week to find new ways to prune the public deficit.

Meanwhile, the Italian government is preparing to pass measures to balance Italy's budget in 2013 as part of an effort to convince investors it can tame Europe's second-biggest debt. Italy must "overcome its rigid, centralised system", Finance Minister Giulio Tremonti told a parliamentary committee.

The European Central Bank began buying Italian debt this week after the government pledged the deficit cuts and after a letter sent by ECB president Jean-Claude Trichet to Prime Minister Silvio Berlusconi called on Italy to possibly lower the wages of public-sector employees, liberalise laws on firing workers, accelerate plans to balance the budget and sell off local state-owned service companies.

And two months into the job, Portugal's Prime Minister Pedro Passos Coelho is deepening the budgetary pain without feeling any gain.

He has announced a tax charge and spending cuts together worth more than 1pc of GDP to ensure he meets the targets set out in the aid package, but the country still faces higher borrowing costs as contagion spreads to Italy and Spain.

The first review of its economic progress following the country's EU/IMF bailout was positive in so far as it said Portugal was "on track" to meet its 2011 deficit goal, clearing the way for it to receive a €11.5bn payment from the programme.

This assessment comes even after the government confirmed a hole of about €1.9bn in this year's budget.

"We are confident that the deficit target of 5.9pc for this year will be met," Poul Thomsen, head of the IMF mission in Portugal, said. (Additional reporting Bloomberg)

Irish Independent

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