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'Recession exit could be bad news for France'

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France's finance ministry where Wednesday's growth figures will have been met with relief. But will they make matters worse? Photo: Bertrand Guay/AFP
18:02 CEST+02:00
While French ministers hailed new figures that showed France's economy had unexpectedly clawed itself out of recession, analysts told The Local that the good news could actually make things worse in the long run and was certainly not cause to celebrate.

“Better days are unquestionably ahead of us,” said France’s Budget Minister Bernard Cazeneuve on Wednesday.

The minister's upbeat statement was in reaction to the news that France was officially no longer in recession after its economy enjoyed surprise growth of 0.5 percent last quarter.

Cazeneuve’s words reflected a feeling of relief among the Socialist French government, who had endured months of flak as the economy ground to a halt and eventually dipped into recession.

While Prime Minister Jean-Marc Ayrault was not exactly jumping for joy, he echoed his minister's positive mood saying “this shows that we're on the right path."

However, analysts disagreed, with Christian Schulz, an economist from Berenberg Bank, telling The Local the figures could even make matters worse for France.

“The impact of these figures could in fact be damaging because they could lessen the pressure on the French government to carry out the necessary reforms.

“This surprise growth could actually make them blind to all the other problems. It’s quite likely France will return to the stagnation we have seen over the last year and half.

Schulz believes growth of 0.5 percent does not mean France’s economy has turned the corner.

For the economist, France’s politicians should only start believing they “are on the right path” once real reforms have been implemented.

“The key is the labour market. France needs to bring down its deficit but its priority is to liberalise the labour market.

“They need to follow the German experience. Since Germany made its labour market more flexible, they have had more people in work and therefore more paying taxes and paying into the social security system. If France can do the same then the fiscal problems will be resolved as a bi-product.

“France has taken modest steps in the right direction, you can’t deny that, but that comes after they took big steps in the wrong direction. There is clearly a lot more to be done.

“After the summer we expect the French government to come up with some widespread, if difficult, reforms.”

Eric Heyer, an economist from the Paris-based French Economic Observatory agrees that the government has no reason to celebrate Wednesday’s figures.

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“This growth was based on an increase in consumption, which does not mean there will be sustainable growth,” he told The Local.

“It was a cold winter which meant households consumed a lot of energy, which was the cause of this economic growth.”

“The data showed that 27, 800 commercial jobs were lost in the second quarter. Until investment increases and companies start creating jobs in France, we cannot say the economy is really heading in the right direction.”

French president François Hollande has vowed to stem the rise in joblessness by the end of 2013, something Heyer believes is unlikely.

“It will be very difficult for France to create any jobs in its public sector this year," he said. "It's possible Hollande can achieve his target, but not probable."

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