France enters in recession

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France went into recession. Yesterday, INSEE (National Institute of Statistics and Economic Studies) has published its new growth forecast for the end of the year. After a second quarter – 0.3%, the third and fourth quarter 2008 are expected to register a decline in GDP (gross domestic product) of – 0.1%. The recession is defined by economists as two consecutive quarters of negative growth, if these forecasts are confirmed, there is no need to cloud the issue: France is in recession.

The government does not recognize. A forecast is never a certainty. And claimed last week the Minister of Economy Christine Lagarde, there is another definition of recession, which takes into account the extent of the fall, allowing the year to post a GDP which will still even progressed to a point. INSEE also refuses to talk. “In the United States, we define a recession as a significant decrease widespread across the economy lasting more than a few months and that affects both the industrial production, employment, income and wholesale trade and retail, “said Eric Dubois, head of economic department of INSEE. He prefers to speak of “growth wedge” in France and throughout the euro area (see page 4).

Paradoxically, the United States will emerge a little better this year (+ 2% growth in 2008), the devaluation of the dollar against the euro has boosted foreign trade.

For France, INSEE table now on a small 0.9% growth over the full year 2008, Germany being a little better at 1.3% and Italy showing significantly less zero growth. The government had last week selected a number of + 1%, which was significantly revised downwards over the month: in the fall of 2007, Bercy expected 2.25%.

The most worrying for France as for the euro zone countries is that if the end of 2008 looks bleak as that provided by INSEE, in 2009 a restart may take time. Because, if despite three quarters of negative and positive (+ 0.4% in first quarter), GDP increases french still a small point, it is thanks to the achievements of 2007. In 2009, the reverse will happen.

Nicolas Sarkozy and the government felt the danger. The announcement yesterday of a plan to the tune of 22 billion euros to finance SMEs (see page 3) is an attempt to limit the damage from the financial crisis on the real economy. The unprecedented nature of the current situation makes it very difficult to assess its consequences. Forecasters from INSEE provide a slight rise in unemployment, which could reach 7.4% by year-end, instead of 7.2% in the second quarter of 2008. A logical consequence of the evolution of employment in the sector, where after 64 000 creations in the first half, 92 000 destruction should be observed in the second. Total employment expected to remain slightly positive (+ 47 000), only through non-profit sector, including community and health.

The biggest threat to the French economy should be the loss of purchasing power. The slowdown in inflation, which would amount to 2.4% in December, after rising to 3.6% (annualized) in July, will not suffice to regonfler. Consumption is expected to be affected. Or is it that the last two years, supporting growth in France. Even if the French get a little in their nest egg, consumption is at best stable in the second half, at worst a slight reduction.

Finally, the area where the fall INSEE provides the most brutal is accommodation. Between banks that are reluctant to lend and buyers wait response to the slowdown in prices, the housing market crisis will take the hit. Household investment in housing, which rose by 7.1% per year in 2006 and a further 3% in 2007 will drop slightly from – 2.5% in 2008. Tuesday evening, the government has introduced an emergency plan (see below against) to limit damage in the building sector.


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