French economy set for 3% slump this year

By AFP

July 15, 2010 Updated Jun 8, 2009 at 9:01 AM CDT

The French economy is likely to contract by 3.0 percent this year, twice the previous forecast amount, a source close to Economy Minister Christine Lagarde said on Monday.

The economy would then rebound and grow by 0.5 percent in 2010, the source said.

In announcing budgetary measures in March, the government had said it expected the economy to contract by 1.5 percent this year and to recover gradually in 2010 when gross domestic product would grow by 1.0 percent.

In 1975, after the first so-called oil price shock that serves as a reference point for European economies since World War II, the French economy shrank by 1.0 percent.

The source said that after contraction of 1.2 percent in the first quarter of this year, on a quarterly basis, "the phase of brutal adjustment is giving way to a period of stabilisation."

The source said that economic activity should pick up at the beginning of 2010, as the effects were felt of policies by central banks and governments to support economies.

"This is a fairly prudent outlook," the source said.

Household consumption, which is the main force behind growth of the French economy, should "hold up in principle" and remain steady in the next few months to show growth of 0.3 percent this year and 0.7 percent in 2010, the source said, giving credence to a report in the newspaper Le Figaro.

Investment by businesses was expected to show a slump of 9.4 percent this year and then of 1.2 percent next year.

The government expected conditions on the employment market to worsen further for a few more quarters up to some point in 2010, the source said.

The French unemployment rate jumped in the first quarter of this year by 1.1 percentage points, the biggest increase since 1975, to 8.7 percent of the workforce from 7.6 percent in the last quarter of last year.

On Monday, the right-wing government under President Nicolas Sarkozy was celebrating a resoundingly strong performance in elections to the European parliament on Sunday.

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