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News Analysis: Will tailwinds overcome headwinds in France in 2014?

English.news.cn   2014-01-05 05:43:01            

by Ounissi Sonia

PARIS, Jan. 4 (Xinhua) -- Looking to his second year of governance, French President Francois Hollande is optimistic over the performance of the eurozone' second main power, noting early positive effects from his package of reforms.

Struggling to defend his economic credibility, Hollande wants to accelerate growth by 0.9 percent and lower the budget gap by 0.5 percentage points to 3.6 percent this year banking on his economic roadmap based on spending squeeze, taxes rise on banks, big firms and the rich while pumping more funds into state-aided job creation.

After emerging from recession at the start of the year, the government estimated that the French economy would grow by 0.1 percent over the whole of 2013.

However, a still morose business climate and an unemployment running at 16-year high likely to put the Socialists on hot seat and added more pressure on them to live up their pledges to trim jobless and the management of public finances, according to analysts.

To Jean-Louis Mourier, an analyst at Aurel BGC investment company, the government's euphoria to kick start a robust growth and respect its financial commitments in 2014 would be limited mainly due to weak investment and wane local demand.

"In 2014, we are going to witness the same scenario as 2013. We expect a positive growth but not a strong rate," Mourier told Xinhua.

"On the one hand, consumers will spend less fearing high unemployment. On the other hand, companies are expected to invest less as there are not reasons encouraging them to pour their money in an uncertain market," Mourier said.

In its recent economic report, the national statistics bureau INSEE revised down the 2013 growth forecast to 0.1 percent from a previous estimation of 0.2 percent, citing sluggish investment and feeble sales abroad.

In a further sign of a gloomy outlook, the agency said the French gross domestic product (GDP) would register a quarterly growth of 0.2 percent in both the first and second quarters of 2014, a figure estimated too weak to curb the rising unemployment trend.

Analysts said the two-trillion-euro (2.71-trillion-U.S. dollars) economy should accelerate at least by 1 percent to start absorbing millions of people without job entering the lifeless domestic job market each year.

"We are clearly in a phase of a fragile economy. The economic activity was almost flat and did not reflect strong signs of growth during the last quarter of 2013 and the beginning of 2014," said Philippe Waechter, director of economic researches at Natixis.

"The French economy is struggling to reorganize itself to find a more robust pace of growth. Maybe that structural reforms would be useful," he added.

After proposing a competitiveness pact and labor reforms, French president announced a new "pact of responsibility" inciting firms to recruit more and to be more innovative while offering an opportunity to enjoy reduced charges.

"Results are slow to come but they are here," he said in response of fresh data that showed a rampant unemployment trend despite the state-sponsored job contracts and labor reforms.

In its recent economic survey, the Organization for Economic Cooperation and Development (OECD) expected France's unemployment rate to stand at 10.6 percent in 2013 and 10.8 percent in 2014, compared to 9.8 percent recorded in 2012.

Furthermore, the Paris-based organization urged France to carry out more reforms as the Europe's main powerhouse was behind its southern neighbors that have overhauled their economies and become more competitive.

"If France does not undertake quickly a turn of 180 degrees, notably by lowering the tax burden and public spending, 2014 could well be worse than 2013. Like last year, we hope that the country's political leaders will finally take the right decisions," Marc Touati, director of ACDEFI financial analysis bureau, wrote in a note. (1 euro = 1.36 U.S. dollars)

Editor: Mu Xuequan
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