Country Report France February 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 government's short-term priorities will be to alleviate the effects of an economic slowdown through measures to support business investment, employment and the incomes of unemployed and low-paid workers.
• Mr Sarkozy will also seek to maintain momentum behind his programme of structural reforms. However, he is likely to choose his battles carefully, postponing any reforms that risk provoking societal revolt.
• The budget deficit is expected to rise to just under 6% 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.
• The French economy is forecast to contract in 2009, for the first time since 1993. Real GDP is expected to decline by a revised 2.5% in 2009. Although a gradual recovery will take hold from 2010, annual growth will be flat.
• 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

• Trade unions called a general strike in late January, to press their demands for additional support for household incomes. In a televised address, Mr Sarkozy promised to address such concerns at "social summit" on February 18th.
• Opinion polls show Mr Sarkozy’s public approval ratings slipped in February 2009. The polls also show rising support for Olivier Besancenot, the leading light of a new far-left party that was launched in February.
• Mr Sarkozy has pledged that the taxe professionnelle (TP), a local business tax, would be completely abolished in 2010. He also said that he was open to the idea of a tax break for those on the lowest income scale.
• In early February Mr Sarkozy announced that two French automotive manufacturers, Renault and PSA Peugeot-Citroen, would receive €6bn in state loans, in exchange for commitments not to close factories in France.
• The European Commission has asked for further details of the automotive package, given concerns that the conditions attached to the loans might breach EU competition laws. The French government rejects these claims.
• France's economy shrank by 1.2% quarter on quarter in the fourth quarter of 2008. Falling industrial production has prompted plant managers to scale back investment plans. The trade deficit reached a record high in 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;49;10;37
NAICS Code: 52;22;212;336