Crisis grows as France officially enters recession

There was more bad news for France on the financial front on Wednesday when new figures confirmed the country had officially entered a recession with GDP contracting by 0.2 percent for the first quarter of 2013 - the second consecutive drop.

Crisis grows as France officially enters recession
Dark days for the bank of France. Photo: Joel Saget / AFP

France entered a recession in the first quarter this year with gross domestic product contracting 0.2 percent, after shrinking the same amount in the last quarter of 2012, the official INSEE statistics office said Wednesday.

With consecutive drops in growth over the last two quarters it means the French economy is officially in recession, for the first time in four years. The figures are set to pile further pressure on President François Hollande as he struggles to deal with record unemployment rates.

Hollande's government is struggling to tackle the country's economic woes, with the president recording the lowest approval ratings of any modern French

Finance Minister Pierre Moscovici said a tiny expansion of 0.1 percent was still expected for 2013 and maintained the government's promise of reversing the rise in unemployment by the end of the year.

He said the recession was "not a surprise" and was "largely due to the environment in the eurozone".

A government source told AFP a return to moderate growth was expected in the second quarter thanks to "the European context and measures taken by France".

INSEE also revised lower the fall in purchasing power for French households in 2012 to 0.9 percent instead of a 0.4 percent fall forecast in March.

French growth has been sluggish, hit by record unemployment and falling household demand, the key driver of the economy.

The government still hopes, however to reduce the public deficit, which stood at 4.8% of  (GDP) in 2012 to 3.7% in 2013.

The news that France has officially entered recession is hardly like to shock economists after negative growth was predicted by both the IMF and the European Commission in recent months.

The EU's Economic Affairs commissioner Olli Rehn has said it would be "reasonable" to give France two extra years to meet the EU deficit target of three percent.

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France to dodge recession but outlook looks less rosy

France will just about avoid a recession but the economic outlook is not as positive as was first forecast.

France to dodge recession but outlook looks less rosy
Photo: AFP

France is set to dodge a technical recession, according to the latest forecasts by the national statistics agency Insee released on Thursday, although it cut its outlook for annual growth to 1.3 percent.

Insee expects the French economy to have expanded by 0.2 percent in the third quarter, after having contracted by 0.1 percent in April through June.

A recession is typically defined as two consecutive quarters of contraction.

While growth will likely pick up further in the final three months of the year, Insee cut its forecast for the year from 1.6 percent to 1.3 percent.

This is below the government's forecast of 1.5 percent growth, but Finance Minister Michel Sapin said French growth remained “solid”.

France's economy grew by 1.2 percent last year.

“Insee's forecasts don't call into question our public deficit target for 2016 nor our growth forecast for 2017,” Sapin said in a statement.

Insee also forecast a 0.1 percent drop in the unemployment rate to 9.5 percent at the end of the year.