Global Future > Country Report > Q4 2009 > Extract

France Economic Outlook : Not too hot, not too cold

France exited from recession in 2009q2 after suffering one of the shallower downturns in the developed world. But the recovery will not be nearly as robust as in other OECD countries.’ ‘The risk is that once the car-buying incentive schemes expire and the global inventory cycle plays out, the economy could be prime for a double-dip recession. This would be a huge blow to sentiment, and would see consumers, who have proven quite resilient, finally retrench

Recession over but medium-term prospects still uncertain

• After four consecutive quarters of contraction, France’s economy expanded modestly in 2009q2 and q3, by 0.3% each quarter. The annual rate of contraction now stands at 2.4%, one of the best performances to date in the eurozone. French consumers have been surprisingly resilient in the face of the global recession, while exports have rebounded nicely in 2009q2 and q3 after falling by over 16% in the previous four quarters. Government car-buying incentives and other such schemes have helped domestically, while the global inventory cycle has lifted demand for French capital goods.
• More forward-looking indicators have been improving steadily. The manufacturing PMI has now entered into expansion territory, with output and new orders recording strong rises in 2009q4. Services have followed suit, with all indicators pointing to an acceleration in GDP growth in q4.
• Activity in France contracted by an estimated 2.3% in 2009, the best performance in the G7. This surprising outturn has been a result of several factors. The economy is less open and export-led than many of its neighbours, thus sheltering the domestic economy from the worst of the global recession. French consumers have also proven quite resilient, especially as job cuts have not been as bad as once expected. Finally, the stimulus package has been well-targeted, in terms of boosting growth in the short term.
• That said, recovery is expected to be slow. The government stimulus is still too small to do anything but cushion the economic fallout of the global recession. Exports, while recovering, remain well down on year ago. And while consumers are not retrenching, nor are they in a position to raise their game, particularly with unemployment still rising.

Key risks

• Unfavourable labour market conditions and weaker income growth might finally push French consumers too far, removing the one pillar of growth in the economy..
• Competitiveness remains an acute problem and could further dampen potential growth as the industry base shrinks. The risk is that the decline might be more persistent.