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France Slips Into Shallow Recession One Year Into Hollande’s Presidency

Minutes after taking office as the new French president one year to the day on Tuesday (May 15) Francois Hollande had to stand under pouring … Continue reading France Slips Into Shallow Recession One Year Into Hollande’s Presidency


Minutes after taking office as the new French president one year to the day on Tuesday (May 15) Francois Hollande had to stand under pouring rain at the tomb of the unknown soldier in Paris. In the year since the Socialist took over power, he could be forgiven for thinking that it has been raining on his presidency ever since.

Official data released on Tuesday showed that the country had slipped into a shallow recession, dealing a blow to Hollande’s electoral promise of more growth and less unemployment.

This is France’s first recession in four years and official data from statistics agency INSEE showed the economy contracted by 0.2 percent in the first three months of this year — the second quarter of negative growth that marks the official definition of a recession.

It blamed weak exports, investment and household spending for the decline, a view shared by some leading economists.

“Overall, I would say France is partly victim of the recession within the euro zone, especially in the south of Europe where Italy and Spain had GDP down 0.5 percent in Q1 and French exports declined 0.5 percent,” said Philippe Brossard, the Chief Economist of AG2R La Mondiale, a leading insurance company.

“Italy and Spain are really the main trading partners to France and this largely explains why the French economy is so weak. Also, we had very weak domestic demand reflected in the fact that our fiscal policy has been rather severe with the taxpayer. And it reduced purchasing power for French consumers,” he added.

In London, economists appeared somewhat more alarmed, saying France urgently needed to implement reforms to improve its competitivity and bring it back in line with that of Germany, the euro zone’s power house.

“If the euro is to survive longer term in its current form, France needs to become competitive. And Hollande hasn’t really done much to achieve that aim at this stage. And as we see ongoing weakness in the growth story going forward, it’s going to make unemployment relatively high in France,” said James Shugg, the London-based Chief Economist of Westpac.

“It’s going to make it more difficult for the French to achieve their budget deficit reduction targets and it’s going to push French debt to GDP ratios — already higher than those in Spain — to the sorts of levels that are going to really make investors whether France is sustainable in its current form,” he added.

One year after his inauguration, Hollande faces a monumental task. Unemployment is now at a record high of well over three million, domestic consumption is low and falling and he has had to ask the European Commission for extra time for france to meet its budget deficit target of three percent of gross domestic product, a measure of economic growth.

On the streets of Paris, the news appeared to be taken with resignation.

“It’s the economic environment that’s to blame. Where he can be criticised is the fact that they didn’t… the fact that they minimised the crisis during the presidential campaign. But it’s not his fault, or his policy. He probably didn’t make very good choices. But the recession had already begun last year,” said one passer-by.

Another passerby said that while the recession was small, it was nonetheless a warning signal.

“It’s not like Portugal or Greece who are at minus five percent every year for the last three or four years. It’s a very strong warning that we’re getting at a time when we’re having to look at the pension system etc. So I think it’s a strong warning. But it’s not like being clobbered with a hammer,” he said.

As for Hollande, who is probably remembering the moment he was inaugurated, he is probably hoping that France will be able to grow itself out of recession and debt by the time the next election comes around in 2017. Whether it does may largely depend on whether he is willing to grasp the nettle of forcing through unpopular reforms and spending cuts, analysts and critics say.