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French economy 'could grow in third quarter'

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French economy 'could grow in third quarter'
Pierre Moscovici
17:41 CET+01:00
Finance Minister Pierre Moscovici surprised markets on Wednesday by saying the French economy could post modest growth in the third quarter, a forecast considered as optimistic by analysts.

"I am reasonably confident on French growth," Moscovici said on BFM TV and RMC radio.

"I think that we could have in the third quarter, I hope, slightly positive growth."

The INSEE national statistics institute forecasts that the French economy will show no growth in period from July through September.

The French economy has not posted any quarter-on-quarter growth for the past three quarters.

But INSEE still forecasts that French growth domestic product (GDP) will rise by 0.2 percent this year.

Moscovici's optimism could be based on consumer spending, the biggest driver of the French economy, growing by 0.1 percent in September and by 0.2 percent in the third quarter, according to data released by INSEE on Wednesday.

Analysts are sceptical, however, noting that consumer and business confidence are at their lowest levels since the depths of the global economic crisis in 2009.

"With unemployment near a record high, banks cutting back their lending and fiscal austerity set to hit households soon, the consumer outlook appears bleak," said Jennifer McKeown, Senior European Economist at Capital Economics.

The French Economic Observatory (OFCE) forecasts a 0.1 percent drop in GDP in the third quarter.

"There is no growth engine that is active at the moment, and even if there is 0.1 percent growth (for the quarter), it won't be enough," said OFCE official Eric Hayer.

He said France would need quarterly growth of at least 0.4 percent to lower unemployment hovering around 10 percent.

The new Socialist government of President Francois Hollande is constrained by France's EU obligations to cut the public deficit to 3.0 percent of GDP from 4.5 percent this year.

The government plans to make €37 billion ($48 billion) in spending cuts and tax hikes to meet the target, although this will likely slow growth and increase unemployment.

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