Country Report France April 2009

Outlook for 2009-10

• The global economic and financial crisis has dramatically changed the political and economic environment facing the French president, Nicolas Sarkozy, who was elected for a five-year term in May 2007.
• The financial crisis means that there are considerable risks attached to the Economist Intelligence Unit's forecastsa more severe recession, a more radical policy response and greater political instability are possible.
• The government's short-term priorities will be to alleviate the effects of an economic downturn through measures to support business investment, employment and the incomes of unemployed and low-paid workers.
• Mr Sarkozy will continue to try to implement some structural reforms, but he is likely to choose his battles carefully, postponing any changes that risk provoking societal opposition.
• The budget deficit is expected to rise above 7% of GDP during the outlook period as a result of below-trend growth. France will avoid facing any financial penalties under the EU's Stability and Growth Pact.
• Real GDP is expected to shrink by a revised 3.5% in 2009the first full-year contraction since 1993. Although a gradual recovery will take hold from 2010, annual growth will remain negative.

Monthly review

• The French government was broadly satisfied with the outcome of the G20 summit in London on April 2nd, having pressed for, and to some extent achieved, an agreement to improve regulation of global financial markets.
• French voters have a favourable opinion of Mr Sarkozy's handling of international issues, but he scores less well in relation to domestic policy.
• The government has secured parliamentary approval for the full reintegration of France into NATO. However, it decided to link the vote to a confidence motion in order to forestall a sizeable rebellion among its own supporters.
• In a nationwide address in late March, Mr Sarkozy outlined steps being taken to help industrial areas being hit by the economic downturn. He reiterated that the government was not considering further stimulus measures.
• The government has introduced or is considering a number of modifications to France's labour market laws and welfare system in a bid to stem rapidly rising unemployment and improve the prospects of those out of work.
• Industrial output fell further in February, but at a lower pace. Consumer spending declined, despite a rise in vehicle sales. Falling inflation has increased real pay. Unemployment rose by 19% in the year to February.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60
NAICS Code: 336;52