Economic growth in France only reaches 0.2%

The French economy, the euro zone's second-largest, grew only 0.2 per cent in 2003, the worst performance in 10 years, according to provisional figures published yesterday by Insee, the national statistics institute.

The centre-right government of Mr Jean-Pierre Raffarin was quick to emphasise the improvement in the final quarter of the year, and voiced optimism for 2004. But other indicators suggested the business climate remained sluggish.

French gross domestic product (GDP) grew 0.5 per cent in the final quarter of the year, a slight improvement on the 0.4 per cent of the previous quarter but marginally lower than earlier official forecasts.

The figures, which came alongside weak GDP data from Germany, underscored the uncertain outlook for the euro zone and deepened fears that the strong euro and fragile consumer confidence could hamper the upturn.

Official figures showed Germany, the euro zone's largest economy, grew just 0.2 per cent quarter-on-quarter in the final three months of last year, but shrank by 0.1 per cent for the year as a whole.

It was the first time the German economy had contracted since 1993.

The German statistics office said "a relatively strong rise in domestic demand" accounted for the growth in the final quarter of 2003, whereas exports, which helped boost the third quarter, fell back.

"What little growth there was came from domestic demand, as the strength of the euro held back German exports, despite the global recovery," said Mr Martin Essex of Capital Economics.

The rise in domestic demand probably reflected stock-building as consumer spending remained weak, as shown by recent falls in retail sales and the sharp drop in car registrations, economists said.

The French government spokesman, Mr Jean-François Cope, said the French figures were "encouraging". He insisted France could expect to achieve 2 per cent growth in 2004, "if not 2.5 per cent".

This would be well above the 1.7 per cent target for 2004 against which this year's budget has been framed.

However, the January survey of business opinion by the Bank of France revealed a slight fall in sentiment.

Economists said recent industrial production figures showed the upturn intact. "But we need to see a broadening of its support on the demand side - consumers jumping on the train," said Mr David Naude of Deutsche Bank.

On the basis of France and Germany's weaker-than-expected performance, the euro-zone economy as a whole is likely to have grown 0.3-0.4 per cent in the fourth quarter of last year, which is below expectations. A provisional estimate for the euro zone will be released today.

The figures will bolster the European Central Bank's caution over the growth outlook.

In December, it projected GDP growth of 1.6 per cent this year, lower than many private sector forecasters.