Country Report France March 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 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 3% in 2009. Although a gradual recovery will take hold from 2010, annual growth will be flat.

Monthly review

• The French government is coming closer to achieving some longstanding aims on reforms global financial market regulation during talks among the G20.
• The European Commission has said it is satisfied that a state aid package for France's automotive sector is devoid of "protectionist elements". The government says it still expects auto manufacturers to try to avoid job losses.
• Mr Sarkozy's willingness to defend French firms against "unwelcome" foreign influence was underlined in late February when he instructed a new sovereign wealth fund to buy a stake in an auto components firm, Valeo.
• Mr Sarkozy sparked political controversy by naming a top economic advisor to head a new bank formed by the merger of two mutuals that have been hit hard by the credit crisis. The state will invest up to 5bn in the new group.
• The government has pledged to cut taxes for low income earners by 1.1bn in 2009, and to increase welfare spending. New official forecasts for real GDP growth and the public finances already look out of date.
• Industrial production declined further in January, following its collapse in late 2008. Consumer spending was more stable. Inflation ticked up in February, but further falls are likely. Unemployment rose sharply at end-2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;60;47;15
NAICS Code: 212;52;48;23