GDP Growth Stalls as Consumption Stalls, French Authorities Ambiguous over SGP Commitments
French GDP growth buoyed by strong consumption levels beat the euro area average last year. But such support is limited. With domestic confidence levels at six-year lows, a deteriorating labour market and savings rates close to 17%, household consumption will no longer be supportive. Indeed we think based on the latest Insee forecast for GDP in the first two quarters that we could see growth of around 0.9% for all 2003.
The French government’s position on its rising fiscal deficit is perplexing — apparent serenity when all the numbers point downwards. According to our information, recent secret official simulations based on optimistic assumptions forecast the deficit to be 3.5% of 2004 GDP. More pessimistic assumptions will clearly push that ratio yet higher. Already the European Commission has launched an Excessive Deficit procedure against France — Brussels’ latest forecasts last Wednesday are for a 3.7% deficit/GDP ratio for 2003 and 3.6% for 2004. Moreover, the public debt/GDP ratio which Maastricht set at 60% will be breached and is forecast to rise to 61.3% in 2003 and 62.8% in 2004.
SummaryAsset Conclusions: Oversold French stocks should outperform near term. Try to get more growth through anti-cyclical fiscal policies but trend cannot last too long.
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© Graham Bishop
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