The French economy will expand by just 1.2% this year, the country’s statistics office, INSEE, is predicting. INSEE said households will cut spending because of surging prices for energy and basic goods and are also being hit by the global economic slowdown and the strong euro. However, the French Economy Minister Christine Lagarde called that forecast “excessively pessimistic.”
INSEE’s economists believe the 0.6% growth at the start of the year was a blip and they foresee just 0.2% expansion in the second and fourth quarters and no growth at all between July and September.
Economist Marc Touatti said: “There’ll be soft growth this year, it will probably be worse next year at just 1.5% and improving by 2010, if all goes well. But Europe’s biggest problem is that we react to, rather than anticipate, problems and there’s a contradiction between what the European Central Bank tells us, what the French government says and the difficult realities of daily life for French people.”
Oil prices, which have risen 40% so far this year, have pushed up manufacturing costs at the same time that French exports to countries outside Europe are down because of the euro’s gain. Consumers, who are the mainstay of French economic growth, also have less to spend because of record high petrol prices.