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France will probably slip back into recession before the autumn, its central bank has warned, showing the difficulties ahead for the Socialist government as it tries to balance the country’s books.
In its first estimate for the third quarter of 2012, the Bank of France said it expected gross domestic product to fall 0.1 per cent. This would follow a similar decline in the second quarter, it predicted, meaning the country would be officially in recession for the first time since spring 2009.
The forecasts are slightly more pessimistic than the national statistics agency, Insee, which publishes preliminary figures for the second quarter on Tuesday.
The Bank of France also warned that industrial confidence was at its lowest level since August 2009, with struggling carmakers PSA Peugeot Citroën and Renault a particular worry.
Meanwhile industrial production in Germany fell by 0.9 per cent in June compared to the previous month, according to the economy ministry. The figures were in line with analysts’ expectations, but provided further evidence of how the eurozone crisis is weighing on the bloc’s core economies.
They suggest that Germany, which also releases second-quarter GDP figures next week, is likely to record a significant slowdown from the 0.5 per cent expansion in the first three months of the year.
The Bank of France’s GDP forecasts, if correct, could pose a serious problem for the French government as it tries to hit a target of reducing the budget deficit to 4.5 per cent of GDP this year and 3 per cent in 2013.
Just last month, France cut growth forecasts to 0.3 per cent this year and about 1.2 per cent for 2013. Pierre Moscovici, finance minister, said on Wednesday the government was sticking to its revised forecast for 2012 in spite of the Bank of France estimate.
However, analysts at Barclays said the Bank of France forecasts showed “activity in 2012 is very likely to finish lower than the 0.3 per cent”. The IMF is similarly pessimistic about 2013, predicting French growth of just 0.8 per cent.
France’s national auditor, the Cour des Comptes, has already told François Hollande, the French president, he will need “unprecedented” savings of about €33bn in 2013 to reach the deficit targets.
Lower than expected growth could require even more drastic cuts, a hugely sensitive issue for a Socialist government elected on an “anti-austerity” platform.
In a separate piece of gloomy economic news, the French finance ministry said the trade deficit rose more than expected in the first six months of 2012 to €34.9bn.
Ministers still expect it to be lower this year than the record €71.2bn in 2011, helped by strong exports of Airbus passenger jets. But the travails of Peugeot, which sells many of its cars in Spain and Italy, have eroded some of those gains.
Nicole Bricq, trade minister, said the deficit – which increased €6bn in June alone – “bears witness to the problem of competitiveness of our companies”.