Country Report France August 2008

Outlook for 2008-09

• The president, Nicolas Sarkozy, will seek to maintain momentum behind a wide-ranging reform programme designed to reduce structural unemployment, raise "purchasing power" and slim the public administration.
• The government will consult widely before introducing reforms in contentious areas and will make compromises where necessary to try to limit the scale of disruptive street protests.
• The general government financial deficit is expected to exceed 3% of GDP during the outlook period, as a result of below-trend growth and the decision to implement tax cuts without offsetting reductions in expenditure.
• Deteriorating consumer confidence, a slowdown in investment and a weaker outlook for external demand have prompted the Economist Intelligence Unit to lower its growth forecasts to 1.4% and 1.2% in 2008 and 2009, respectively.
• Our forecasts for US growth in 2008 and 2009 stand at 1.2% and 1.1%, while the euro area is expected to growth by 1.5% and 1.2%. Given the global credit crunch, downside risks remain substantial.
• France will post large trade deficits in 2008-09, but these will be partly offset by surpluses on the services and investment income accounts.

Monthly review

• Parliament has approved the governments constitutional reform package, delivering an important victory for the president, Mr Sarkozy, who had promised institutional reform during the 2007 election campaign.
• The constitutional reform bill was amended in successive readings in parliament in May and June, but most of the provisions of the governments reform package were adopted with little change.
• The passing of a new law on trade union representation and working times marked an end to a busy parliamentary year, during which a number of important labour market reforms were approved.
• In late July the government finally realised a long-held ambition with the formal creation of a new energy giant, GDF Suez. It is France's third-largest company and is the largest distributor of gas in western Europe.
• Mr Sarkozy was spared a potentially damaging confrontation with some of France's partners in the EU when the Doha trade talks collapsed in July.
• Consumer spending on manufactured products was flat in the second quarter. Consumer confidence fell further in July.
• The trade deficit widened to 18.1bn in the second quarter of 2008, compared with 12.9bn in the same period of 2007.

Source: Country Report