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28. Slowdown in French Economy Weights on Euro Zone
PARIS – France`s economy grew at its slowest pace in two and a half years in the second quarter as slower global growth weakened domestic demand and curbed exports, official data released Friday showed.
France`s gross domestic product rose just 0.3 percent in the second quarter, compared with 0.4 percent growth in the first three months of the year, the national statistics office, INSEE, reported.
The report was the clearest sign yet that growth in the euro-zone`s second-largest economy was slowing in tandem with Germany, the bloc`s largest economy. Gerhard Schroeder, the German Chancellor, hinted Friday that the Government might take measures to stimulate the weakening economy, a German newspaper reported.
“The French GDP data was as expected, with very weak domestic demand confirming the picture that the French economy has slowed down,” said Nicolas Sobczak at Golden Sachs in London. “This is not very encouraging for the rest of the year”.
In another sign of flagging growth, inflation rose at its slowest pace in six months in September, a separate report revealed. Preliminary figures showed consumer prices edged up just 0.2 percent and remained flat in the three months to September. Inflation is up just 1.6 percent from a year ago – well below the 2 percent level considered worrisome by the European Central Bank.
The central Bank kept interest rates on hold at a monetary policy meeting on Thursday, but it has cut the benchmark rate by three quarters of a point within three weeks, following the terrorist attacks in the United States. Officials said they felt comfortable with a rapid easing of credit – done to underpin investor morale – because inflation in the 12-country euro bloc remained tame.
“The ECB is following its mission of price stability to the letter and seems loath to act quickly,” said Jan Eric Fillieule, an economist at CCF Bank in Paris. “But since inflation looks like it will stay tame,
they could edge towards lowering rates”.
The data are the latest signs that France`s economy began to slow even before the attacks on New York and Washington. Analysts say that consumers` fear after the attacks means that growth probably will have worsened in the third quarter.
A survey by the Bank of France, released Wednesday, suggested that French gross domestic product would grow at 2 percent for 2001 below the government`s 2.3 percent target.
Household consumption in the second quarter grew just 0.3 percent sharply down from a 1.2 percent pace in the first.
Total investment in the French economy was down 0.2 percent, while imports and exports fell by 1 percent and 1.3 percent respectively.
Consumption and investment are also down in Germany, which has slowed more sharply than other euro-zone economies as exports to the United States have fallen off.
Mr. Schroeder said in a newspaper interview that his government would review at the end of this year what steps might be needed to stimulate the economy.
“Those who call for new economic programs must say how these are to be paid,” he said in an interview with the Neue Presse in Hanover. “We can`t and don`t want to run up new debt.”
But, Mr. Schroeder added, “At the same time one has to keep an eye on the current development and then check after the fourth quarter whether there may be a need to take action.”
Even without an economic program, Germany`s budget is under pressure because the economic slowdown has hit tax revenues and forced public spending.