France reports zero growth

Fri, Aug 12, 2011, 01:00

French economic growth ground to a halt in the second quarter, raising pressure on the government to cut spending and abolish tax breaks to convince turbulent financial markets it will deliver on debt reduction targets.

France's statistics office said GDP growth was zero in the April-June period versus first quarter growth that, at 0.9 per cent, was the best in almost five years.

The main cause was a drop in household consumption, which was down 0.7 per cent from the first quarter, a particularly worrying sign for an economy that, unlike Germany's, is particularly reliant on domestic demand.

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 per cent in 2011, 2.25 per cent in 2012 and 2.5 per cent on average in each of 2013 and 2014. A recent IMF report gave a somewhat less rosy picture of 2.1 per cent for 2011, 1.9 per cent in 2012 and 2 per cent for 2013.

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