Business, Economics and Jobs

French economy posts zero growth as euro-zone crisis deepens


French Economy Minister Francois Barouin (R) kisses Budget Minister Valerie Pecresse as they leave the Elysee Palace after a meeting with President Nicolas Sarkozy on Aug. 10, 2011.


Martin Bureau

French economic growth spluttered to zero in the second quarter, official figures showed Friday as the government struggled to reassure markets it deserved its AAA credit rating.

Gross domestic product stalled in Europe's second-biggest economy compared to growth of 0.9 percent in the previous quarter, due mainly to lower consumer spending, the national statistics agency said, according to AFP news agency.

"With the economy stagnating and elections coming up next spring, it will be extremely difficult to implement the aggressive austerity measures that are needed to convince markets that the government finances are on a stable footing," Jennifer McKeown at Capital Economics said.

The GDP result "may add to investors’ fears of a possible downgrade of French sovereign debt," she added.

President Nicolas Sarkozy has rushed back to Paris from his summer holiday and called an emergency meeting with his German counterpart to discuss the euro-zone debt crisis.

AFP reported:

After the European Central Bank this week stepped in to buy government bonds of Italy and Spain, lowering their borrowing costs, the market turned its fire on France as rumors swirled about the solidity of its AAA credit rating.

French ministers have battled all week to head off speculation that France will be the next country to lose its top credit status after the United States was stripped of the prized rating last week.

Meanwhile France, Italy, Spain and Belgium banned short-selling of stocks Friday to prevent destabilizing speculation from further undermining confidence, Reuters reported.

The move came after negative rumors rocked prices of several European companies' stocks this week, including major French lender Societe Generale.

The French government sought to put a positive spin on the GDP data and insists the country will reach its target of 2.0 percent growth for 2011.

Any significant slowdown will make it difficult for Sarkozy's to fulfil promises to cut France's deficit from 7.1 percent of GDP last year to 3.0 percent by 2013.

Finance Minister Francois Baroin brushed aside the zero-growth data, telling French radio: "For this year we are in line," according to the Wall Street Journal.

But some analysts think the 2.0-percent growth target may now be out of reach.

"Without a miracle there won't be a return to strong growth in the coming six months, unless the euro falls steeply," Nicolas Bouzou, economist at French financial consultancy Asteres, told the Journal.

"There is no margin for stimulus," he added.