France under pressure as growth stalls in Q2

France has reported annualised GDP growth of zero in the second quarter, raising concerns over the government’s ability to meet its financial targets.

The flat growth rate between April and June was below expectations of a 0.3% rise and down from a 0.9% increase in the first quarter of the year.

The figure was driven by a fall in household expenditure, which was down 0.7% from the first quarter.

A 3.1% rise in import growth seen in the first quarter was not sustained between April and June, with import growth contracting by 0.9% over that period.

Finance minister Francois Baroin told French radio the nation is still on course to meet its GDP and deficit reduction targets for the year. The government is forecasting a 2% growth rate for 2011 and intends to reduce France’s budget deficit, which was 7.1% last year, to 3% by 2013.

France has come into the firing line this week amid speculation it may be the next AAA sovereign to be downgraded – despite all three major ratings agencies affirming the stability of its rating.

“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 the government finances are on a stable footing,” said Jessica McKeown, senior European economist at Capital Economics.

The figures prompted a weakening in the euro against the dollar, the single currency falling from $1.424 to $1.416.

The country’s banks have been notable sufferers, with shares in Société Générale having fallen by almost 20% over the course of the week and briefly losing the same amount in Wednesday’s trading alone.

 

This article first appeared in our sister publication Investment Week

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