France slides towards recession

Nov 09 2012, 21:46 IST
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SummaryFrance's central bank said it expected the euro zone's second-largest economy to slip into recession as 2012 ends.

French Finance Minister Pierre Moscovici, who recently said he expected the economy to grow slightly in the third quarter of 2012, while INSEE predicts zero growth.

Bank of France chief Christian Noyer, speaking in regional media interviews before Friday's statement from the central bank, said the government was right to target a deficit of three percent in 2013 and that he was confident.

It's a mark of French economic credibility, Noyer told Vosges Matin and other eastern French newspapers. Growth will recover gradually during the course of 2013 if we can restore confidence in Europe and France, he said.

While the government predicts 0.3 percent GDP growth this year and 0.8 percent growth in 2013, the European Commission reduced its predictions for France earlier this week, to 0.2 percent and 0.4 percent respectively in 2012 and 2013. The Bank of France does not make predictions of annual growth.

Torn between the need to reduce its deficit and reboot a stalled economy, Hollande's government unveiled plans this week to reduce companies' labour costs by six percent per year to help restore waning competitiveness on world markets, measures to be funded in part by rises in VAT sales tax from the start of 2014.

Bouzou at the Asteres consultancy said the government might now need to accelerate implementation of that package.

The difficulty France is going to have now is that southern European countries have become more price-competitive so their recovery will in part be at our expense, he said.

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