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French economy on notice

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French economy on notice
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France is showing some lucky numbers, doing better, economically, it seems, than its EU partners, notably Germany. It is avoiding recession, posting growth, even though not much. The French are going into 2012 slightly vulnerable. Long accustomed to a prestigious place as the world’s fifth-largest economy, today it is on thin ice with the credit rating agencies, worried about downgrading.

GDP rose just a tad in last year’s fourth quarter, but it was more than some could boast, and spread over 12 months growth was 1.7 percent. On the other hand, households continue to consume less, and the trade deficit is now 70 billion euros, with unemployment on the rise, over nine percent. Some 32,000 jobs were shed in the third quarter.

Some of these were in industry, and analysts are pessimistic for this year, expecting weak growth or none, forecasting worse losses. They identify it as a structural problem demanding solutions.

Analyst Eric Heyer said: “We can still live with a service economy but there has to be some industry, and in France we’re not far from the bare minimum, without a doubt. This decline in industry’s role in the French economy has to stop.”

The month after Standard & Poor’s Ratings Services stripped France of its triple-A grade, and now Moody’s is warning it could follow suit, citing a deterioration of the country’s debt. It is far from the only one whose sovereign accounts are under euro zone pressure, but it has a bigger reputation to live up to.

The deficit is 5.5 percent of GDP, with forecasters predicting it will stay above the three percent maximum allowed under EU rules: 4.8 percent. Debt is forecast to overshoot 90 percent of GDP this year.

Market analyst François Chaulet said: “Putting France on notice is done with a quite precise calendar two or three months ahead of a rating change. We can see that this is quite important because of the French presidential elections coming up. That could bring different proposals and interpretations, depending on the different economic programmes proposed to the French.”

French cartoonists have taken to depicting incumbent President Sarkozy as a child fed bottled milk by Germany’s Chancellor Merkel. Whoever wins the elections in May, the economy will need more than milk.