Country Report France June 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 prolonged recession 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 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

• Despite the grim economic backdrop, Mr Sarkozy's Union pour un mouvement populaire (UMP) achieved a resounding victory in elections to the European Parliament on June 7th, topping the ballot for the first time since 1979.
• Another surprise winner in the elections was the Europe ecologie coalition, which matched the seat tally of the Parti socialiste.
• The centrist Mouvement democrate failed to live up to pre-election predictions of success, following a highly personalised anti-Sarkozy campaign by the party's leader, Francois Bayrou.
• The government suffered a rare political defeat when the Conseil constitutionnel (constitutional court) judged that a new law aimed at combating "online piracy" infringed human rights legislation.
• The public finances watchdog, the Cour des comptes, has issued a damning appraisal of the government's management of the state budget.
• Real GDP declined by 1.2% quarter on quarter in the first quarter of 2009. Revisions show that France has been in recession for four quarters.
• Business and consumer confidence have risen from their early 2009 troughs, but remain extremely weak. The unemployment rate is approaching 9%.

Source: Country Report