World Economic outlook - France economic growth outlook 2012 Reuters poll : France's growth outlook for 2012 is looking grimmer than ever, a Reuters poll showed, making the government's deficit-cutting goal harder to reach and piling pressure on President Nicolas Sarkozy just weeks before a re-election battle.
A poll of some 20 economists, conducted over the past week, showed France probably entered a mild recession in the fourth quarter of 2011, contracting by 0.2 per cent between October and December, then by 0.1 per cent in the first months of 2012.
The downturn will be short-lived, the poll showed, with gross domestic product expanding again in the second quarter. But the recovery will be lacklustre, with the economy eking out just 0.1 per cent growth for the full year, well below a previous forecast of 1.0 per cent in a poll conducted in October.
The government is also forecasting growth of 1.0 per cent, and its target of cutting the deficit to 4.5 per cent of GDP this year is based on that prediction.
Sarkozy's conservative government will determine early next month whether to revise its growth forecast when a budget update is reviewed, a source said on Wednesday.
Economists see even more downside risks to their forecasts for this year, as austerity measures weigh on demand and the threat of a Greek sovereign debt default destabilises the region's banks, many of which are exposed to Greece.
"Credit conditions may tighten more than we currently envisage as banks are squeezed from all sources of funding but the ECB," said Marie Diron, economist at research bureau Oxford Economics.
"Secondly, unemployment may rise more than currently forecast if businesses have kept staff members hoping for a recovery this year," she said.
Sarkozy's government has said that 16 billion euros of deficit-cutting measures for 2012 announced in November last year will allow it to meet its 4.5 per cent target even if growth comes out below forecast at just 0.5 per cent.
But what is clear from economists' predictions is that even this lower figure is seen as too optimistic, and a great deal more effort will be needed to keep its finances on track.
January's poll showed economists expect the budget shortfall to stand at 4.8 per cent of GDP at end-2012, and at 3.6 per cent in 2013 when the government was hoping to have brought the deficit down to the EU-imposed ceiling of 3 per cent.
POLITICAL RISK
With a presidential election now just three months away, and France reeling from Standard & Poor's downgrade of its cherished triple-A rating, Sarkozy now finds himself facing a dilemma.
Applying more austerity measures ahead of the election risks alienating voters and crimping growth further. But allowing finances to slip means a loss of credibility with financial markets and the risk of another downgrade from a rating agency.
In response to the challenge, Sarkozy has shifted his focus on the economic front to reviving France's waning competitiveness.
On Wednesday he met with union leaders to try push through changes to rigid labour rules and raise VAT to help fund a reduction in social charges for employers, in a bid to improve finances through growth and jobs rather than just spending cuts.
But public protests on the same day, and union opposition to structural reforms show he faces an uphill struggle.
There is also the serious risk that Sarkozy could lose the upcoming two-round presidential election, scheduled to start on April 22, raising the threat that a successor could reverse or at least slow any reform.
Analysts say the political risk in countries like France means pressure is on to find more growth-friendly remedies for the euro "flu" and markets are likely to push the European Central Bank to follow more accommodative monetary policy, a move it has so far resisted.
Cyril Blesson at Pair Conseil said too much focus has been placed on fiscal policy in solving the euro zone debt crisis, which is not just a simple problem of public finances.
"Efforts are needed on all sides: austerity in the south, expansionary policies in the north. And a sound monetary policy implying more massive public debt purchases," he said.
An easing in inflation should make the ECB more inclined to follow an expansionary route. January's Reuters poll showed the pace of growth in French consumer prices slowing in 2012 to 1.8 per cent from 2.1 per cent in 2011, well within the ECB's target of inflation close to or below 2.0 per cent.
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