Country Report France January 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 1.8% in 2009, with a gradual recovery from 2010 lifting growth to 0.3% in that year.
• 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

• The impact of the economic downturn on Mr Sarkozy's political priorities was becoming apparent at the start of 2009, with the government postponing two unpopular reforms (on education and Sunday opening hours).
• Mr Sarkozy has nonetheless continued to dominate the headlines in recent weeks, launching reforms to the media and the judiciary. He was also actively engaged in diplomatic efforts to try to end the conflict in Gaza.
• France's six-month presidency of the EU was brought to a successful conclusion in December 2008 with agreement on a climate change package. MrSarkozy is widely seen as having raised the EU's international profile.
• With the worldwide slump in the automotive sector having a serious impact on the French economy, in mid-January 2009 the government announced that it intended to provide 5bn-6bn to aid struggling car manufacturers.
• The government is planning to repeal the loi Royer, which was designed to protect small retailers from competition from supermarkets and hypermarkets. A new system of planning permits will be introduced.
• Consumer confidence has edged up as inflation has fallen, but it remains weak. Industrial production suffered a spectacular collapse in the final months of 2008. Unemployment rose sharply in October and November.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;39
NAICS Code: 52;31