Country Report France October 2008

Summary

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 the incomes of unemployed and low-paid workers, and extend profit-sharing schemes.
Mr Sarkozy will also seek to maintain momentum behind his programme of structural reforms, but faces a more difficult economic and political environment during the second parliamentary year of his presidency.
The general government financial deficit is expected to exceed 3% of GDP during the outlook period, as a result of below-trend growth and the decision to implement tax cuts in 2007-08 without offsetting cuts in expenditure.
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 0.2% in 2009, with a modest recovery to 0.9% 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.

As the current holder of the EU presidency, Mr Sarkozy has been attempting to co-ordinate the EU's response to the intensifying financial crisis.
France secured agreement on an EU immigration and asylum pact in September, but there has been only limited progress on defence issues.
Mr Sarkozy ruminated on the state of global capitalism in a major economic policy speech delivered on September 25th, calling for improved market supervision and a reform of mark-to-market accounting rules.
The French and Belgian states joined forces to bail out the troubled Franco-Belgian municipal lender, Dexia, in late September.
On October 10th the government promised 320bn in state-guaranteed lending to banks, and 40bn to recapitalise any bank in difficulties.
The draft budget for 2009 was presented on September 26th. It aims to freeze real state expenditure, while targeting a general government budget deficit of 2.7% of GDP. The government's forecasts look highly optimistic.
French equity prices plummeted during the last month. Rising fears over counterparty risk caused a severe squeeze in European interbank lending.
Recent indicators suggest that the French economy is already in recession. Unemployment has begun to edge up. Industrial production has fallen further.

This report covers the following industry codes:
SIC Code: 10;49;15;65;60
NAICS Code: 212;11;22;23;53;52