FRANCE WILL suffer its worst postwar recession this year with the budget deficit ballooning to almost twice normal EU limits, according to new government projections.
The figures, already widely leaked in the media and broadly confirmed by the economy ministry, were presented to the cabinet by French economy minister Christine Lagarde.
The revised budget figures replace the official forecast of 0.2 per cent to 0.5 per cent growth this year that had long ago been relegated to the scrapheap, but which had not yet been replaced by a new official outlook.
The forecasts show the French economy is expected to contract 1.5 per cent in 2009, worse than the 1 per cent contraction in 1975 during the oil shock that sent the world economy into a tailspin.
“The situation is difficult, down 1.5 per cent, it’s a year such as we have not seen since the first oil shock, so it’s a year of contraction,” government spokesman Luc Chatel said after the cabinet meeting.
Each day brings news of company layoffs, plunging car sales or rapidly dwindling consumer confidence. Unemployment has risen past two million, bringing the jobless rate to 8.3 per cent in January, according to EU data.
The relentless bad news has posed a headache to a government that has seen its ratings dive and a wave of protests that brought up to 2.5 million people on to the streets in January.
The European Commission is forecasting a 1.8 per cent contraction for France in 2009, while the International Monetary Fund expects it to shrink 1.9 per cent.
The French forecasts see a rebound next year, with growth in the euro zone’s second-biggest economy expected to be 1 per cent.
The French government has pumped billions into propping up the banking system as well as the wider economy, brushing aside the normal restraints imposed by EU borrowing rules.
The deficit is expected to hit €103.8 billion or 5.6 per cent of gross domestic product in 2009, contracting to 5.2 per cent in 2010 and 4 per cent in 2011, but still well above the 3 per cent limit in the EU’s Maastricht treaty. – (Reuters)
