France dodges recession with zero growth in Q2

France's economy managed zero growth in the second quarter of 2012, data showed Tuesday, beating expectations it would begin a slide into recession.

In its first flash estimate for the second quarter, the national statistics institute INSEE said that French gross domestic product (GDP) was unchanged.

That confounded expectations by many economists including the Bank of France that slowdown plaguing much of the eurozone would push France towards recession.

French Finance Minister Pierre Moscovici called the result "very weak" but held to the government's forecast for 0.3 percent growth in 2012.

Moscovici said on Europe 1 radio that zero growth "wasn't great" but "at the same time France is not in recession" unlike "most of our partners" in the EU such as Spain, Italy and Britain.

A recession is commonly defined by economists as two consecutive quarters of contracting activity.

However France once again did less well than its principal partner, Germany, which posted 0.3 percent growth in the second quarter according to official data also published on Tuesday.

Eurostat was to later release its flash second quarter estimate for the eurozone, which posted flat growth in the first quarter.

France emerged from its last recession in the spring of 2009 but the economy has since struggled to gain momentum as the eurozone debt crisis has intensified, posting zero growth for the last three quarters.

Uncertainty over the fate of the euro and related problems in credit markets have resulted in investors either cancelling or delaying major spending decisions, with a Greek debt writedown and concern over Spanish banks hitting sentiment in the second quarter.

Meanwhile consumers have been hit as governments cut spending and raise taxes to reduce the deficits and debt that are behind the eurozone crisis.

The French construction and automobile industries have been hit particularly hard. New housing starts in the second quarter were 14 percent below 2011 levels while July car sales were down 7.0 percent on a year earlier.

With these job-intensive sectors struggling, unemployment has spiked.

Latest figures put the jobless total at nearly 10 percent of the workforce with a further 5.0 percent working fewer hours than they would like.

Given the deepening of the eurozone crisis in the second quarter "flat GDP shows resilience in the second quarter," said Berenberg Bank Senior Economist Christian Schulz.

"Despite the apparent resilience of French GDP, some worrying trends persist," he added, however.

He noted France is continuing to lose competitiveness to southern eurozone countries going through difficult adjustments, with imports continuing to outpace exports and taking the trade deficit to record highs.

The trade deficit took 0.5 percent off France's growth in the second quarter, after 0.1 percent in the first quarter.

Moreover France has yet to begin serious austerity, with government spending continuing to support the economy, he noted.

That poses a challenge to France's new Socialist government.

Elected in May on a jobs and growth ticket, President Francois Hollande faces an increasingly tough battle to deliver while simultaneously meeting a commitment to reduce France's budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013.

While Moscovici stuck to the government's latest forecasts of 0.3 percent growth in 2012 and 1.2 percent in 2013, they are considered optimistic by the International Monetary Fund (IMF) and the Bank of France.

Slower growth would force the government to make greater cuts or raise more taxes to meet its deficit targets.

Source: http://news.yahoo.com/french-economy-shows-zero-growth-q2-insee-060953280.html

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