Country Report France November 2008

Outlook for 2009-10

• The president, Nicolas Sarkozy, has committed his government to taking all necessary steps to restore stability to the banking system.
• The government's short-term priorities will be to alleviate the impact 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, but faces a far more difficult economic and political environment during the second parliamentary year of his presidency.
• The budget deficit is expected to exceed 4% of GDP during the outlook period as a result of below-trend growth. However, France should avoid facing any financial penalties under the EU's Stability and Growth Pact.
• The crisis of confidence in global financial markets has prompted the Economist Intelligence Unit to lower its growth forecasts. We now expect real GDP to contract by 0.7% in 2009, with a modest recovery to 0.6% in 2010.
• 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

• Mr Sarkozy has put his considerable energy into shaping the European and global response to the international financial crisis, holding a series of meetings with other leaders and presenting numerous proposals.
• The French president has irritated some of his European partners by implying that he should act as an unofficial president of the euro area in 2009.
• Mr Sarkozys call for greater euro area co-operation over economic and industrial policies was dismissed by the German government, but could gain favour elsewhere in Europe as economic conditions deteriorate in 2009.
• A commission on local government reform has been established to propose a redistribution of powers between different tiers of government.
• The government has announced a number of initiatives to stabilise the economy, including tax relief for firms, an increase in subsidised employment and the creation of a new strategic investment fund.
• French banks have begun drawing on government funds to boost their solvency ratios, although the French state has renounced ownership rights.
• The French economy defied expectations that it was in recession, recording positive real GDP growth of 0.1% quarter on quarter in the third quarter. However, indicators point to a contraction in the final months of the year.

This report covers the following industry codes:
SIC Code: 60;65
NAICS Code: 52;53