Country Report France October 2009

Outlook for 2010-11

• The French president, Nicolas Sarkozy, will treat the improvement in his personal popularity ratings over the past year as a green light from voters to press ahead with his programme of incremental structural reforms.
• Although the economy is slowly emerging from a recession, unemployment will continue to rise, prompting the centre-right government to increase spending on social programmes in a bid to limit the risk of social instability.
• Mr Sarkozy will continue to try to implement some structural reforms—including to welfare benefits, local government and the tax system—but he will consult widely and be willing to compromise.
• Businesses will benefit from the abolition of the local income tax in 2010, although this will be partly offset by a new carbon tax. The government will issue a public bond to finance new strategic investment projects.
• The budget deficit is expected to rise above 9% of GDP during the outlook period as a result of a severe economic contraction. France will avoid facing any financial penalties under the EU's Stability and Growth Pact.
• Real GDP is expected to shrink by 2.3% in 2009. Growth is likely to remain volatile from quarter to quarter, but the Economist Intelligence Unit expects a gradual recovery in real GDP growth to 0.9% in 2010 and 1.3% in 2011.

Monthly review

• The government has had a difficult few weeks following calls for the resignation of a minister, allegations of nepotism involving the president's son and some injudicious remarks by Mr Sarkozy regarding an ongoing court case.
• The trial of the former prime minister Dominique de Villepin began in September, following accusations that in 2005 Mr de Villepin interfered with the "Clearstream" corruption investigation to smear Mr Sarkozy.
• The trial is the first to involve a serving president as a plaintiff and in response to comments made by Mr Sarkozy, Mr de Villepin has launched his own legal action against the president for prejudicing his trial.
• The draft 2010 budget was presented before parliament in early October. The budget envisages the abolition of the local business tax, or taxe professionnelle (TP), and the introduction of a new carbon tax.
• The government's latest medium-term projections suggest that the it will prioritise growth, rather than engage in deep expenditure cuts or raise taxes to stem the deterioration of the public finances.
• The recovery in industrial production was maintained in July and August. Household consumption of manufactured goods has fallen.

This report covers the following industry codes:
SIC Code: 48;60
NAICS Code: 517;52