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French industry rallies but economy struggles: analysts PDF Print E-mail
Wednesday, 12 March 2008

Agence France-Presse . Paris

France is struggling with a record trade deficit but industry has begun the year in dynamic form, official data showed on Monday only hours after an election setback for the right-wing government.

The trade balance, a source of concern to analysts for some time, showed a record deficit last year of 39.560 billion euros ($60.9b), customs data showed.

The previous record deficit was 28.238 billion euros in 2006. At Global Equities, analyst Marc Touati said of overall data published on Monday: ‘The situation remains very fragile, but is not however catastrophic.’ French economists have warned for months that France has a structural trade deficit, saying that this is broadly the result of weakening competitiveness by French industry.

French politicians have led calls in Europe for the European Central Bank to cut interest rates and help bring down the record value of the euro against the dollar and other currencies, which makes eurozone exports less competitive on international markets. The trade figures also showed an adjusted deficit in January of 3.391 billion euros, a reduction from a revised figure of 3.954 billion euros in December.

Other official data from the statistics institute INSEE showed that industrial output rose by 0.5 per cent in January from the figure for December which had gained a revised 0.6 per cent in the month. And manufactured output, excluding production of energy and by the food and agriculture industries, rose by 1.2 per cent in January, having expanded by 0.3 per cent in December. Production by the auto industry rose by 1.8 per cent, having increased by 3.6 per cent in December.

Analysts warned throughout last year that weak industrial competitiveness was hitting exports and that the main driver of growth was domestic consumption which also showed signs of flagging at the end of the year because of rising interest rates and inflation. The latest data modified their short-term view against the background of a setback for the reforming government led by President Nicolas Sarkozy in local elections on Sunday.

Touati commented: ‘Certainly, the (trade) figure for January showed a reduction in the deficit of 500 million euros in the month, to 3.4 billion euros. Nevertheless, compared with the monthly figure of 2.0 billion euros (deficit) only a year ago, this remains an extremely high figure.’

‘There is one poor consolation, the slowing of internal demand, notably consumption, will reduce growth of our imports.’ He estimated that France would have a trade deficit for the whole of 2008 of 40-45 billion euros.

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