August 12, 2011

Growth in French Economy Grinds to a Halt in Q2

Household consumption slows as economy stagnates

french flagDespite the fact that economists had expected growth of 0.3% in the French economy in Q2, consumers cut back and there was no growth at all for the period.

Growth in the first quarter had been the best in nearly five years at 0.9%, and it had been expected that a growth trend would continue. However, exports were flat, according to a Bloomberg report, and French households cut consumption by 0.7%, driving the economy lower and threatening to take the euro zone along with it. Germany and the euro zone are expected to release their numbers on Aug. 16.

Jennifer McKeown, senior European economist at Capital Economics in London, said in a note to clients, “Next week’s release might show that Germany performed a bit better, but with Italy and Spain barely growing, the euro zone as a whole will have managed only a very modest expansion in the second quarter. As for France itself, the 0.7% drop in consumer spending was the sharpest in nearly 15 years, suggesting that the household sector can no longer be relied upon to support the economy.”

Despite flat numbers in exports and a record trade deficit of over 7 billion euros ($9.991 billion) in the months of April and May, international trade was responsible for 0.3% growth in Q2 thanks to a 0.9% decline in imports.

The French government was not going to change its targets, according to Francois Baroin, the country's finance minister. He also said the country would meet its debt reduction goals; on Wednesday French President Nicolas Sarkozy ordered ministers to find new ways to cut the deficit.

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