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France: Country Economic Forecast: 20 Feb 2012

7 Pages Oxford Economics February 20, 2012 SKU: OFE6823976

GDP surprised on the upside in 2011Q4 with a 0.2% rise on the quarter. Investment in particular was stronger than expected, largely accounted for by volatile spending on transport equipment. The more resilient Q4 takes our 2012 GDP growth forecast up to zero. But we continue to expect a fall in activity in Q1. We doubt that investment growth will remain robust in 2012 as the economic environment is so unfavourable. Indeed, the bank lending survey showing that French banks tightened their lending criteria significantly at the end of 2011 is a source of concern. And despite rising activity, businesses were already cutting employment in H2 last year. Firms are using the flexibility of temporary contracts to adjust staff levels. With a significant pick-up in growth looking unlikely, we expect companies to lay off staff who have been kept on payrolls in the hope of a robust recovery this year. As a result, the unemployment rate is likely to rise above 10% (on the ILO definition). Our forecast does not currently include any 'social VAT' given the uncertainty about whether the measure will be implemented, depending on who wins the presidential election. If implemented, we would expect a small and short-lived impact on inflation. The reforms unveiled by President Sarkozy on 29 January move in the right direction by lowering labour costs and making contracts more flexible. But until after the elections, uncertainty remains as to what reforms will actually be implemented.

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France: Country Economic Forecast: 20 Feb 2012

Oxford Economics
February 20, 2012

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