Business News

French Economy Stagnates in Second Quarter


French economic growth ground to a halt in the second quarter of 2011, raising pressure on President Nicolas Sarkozy to cut spending and abolish tax breaks ahead of elections as he tries to convince nervous financial markets that he will deliver on debt reduction targets.

France's statistics office said economic output, as measured by gross domestic product, was zero in the April-June period versus a first quarter that, at 0.9 percent, was the best in almost five years.

The main cause was a drop in household consumption, which was down 0.7 percent from the first quarter.

Economists polled by Reuters had on average predicted a rise of 0.3 percent and some economists had said as market sentiment turned against France this week that the GDP result could even have hit zero in the second quarter.

After the European Central Bank moved this week to defend the bonds of Italy and Spain, market fire turned on France amid rumour and counter-rumour about the health of its banks and the solidity of its 'AAA' credit rating.

A stagnating economy will not help. French Finance Minister Francois Baroin played down the poor quarter, saying it was no surprise after a strong start to the year.

He said the government would not downgrade its growth forecasts and would meet its debt-cutting goals after President Nicolas Sarkozy ordered his ministers on Wednesday to find new ways to prune the public deficit.

The government's debt-cutting plan is based on GDP growth of 2.0 percent in 2011, 2.25 percent in 2012 and 2.5 percent on average in each of 2013 and 2014.

A recent IMF report gave a somewhat less rosy picture of 2.1 percent for 2011, 1.9 percent in 2012 and 2.0 percent for 2013.

France, Italy, Spain and Belgium imposed a ban on short-selling financial stocks late on Thursday, in a coordinated attempt to restore confidence in a market hit by rumours and higher borrowing costs.