France: Record Deficit in Foreign Trade
In 2008, gross domestic product in France will probably grow by only 1 percent in real terms, and the forecast for 2009 does not paint a rosier picture. Problems in the national budget will get worse and, accordingly, it will become more difficult to reduce the deficit to zero by 2012, as agreed with Brussels. In the first six months of 2008, the balance of trade recorded a deficit of 24 billion euros. At the same time, French investors’ appetite for foreign investments is growing.
According to the German Federal Agency for Foreign Trade (bfai), the government blames the slowing down of the world economy as the main reason for the economic downturn, with companies putting off deals and consumers acting with caution. However, the government does exclude a recession and warns people not to panic. The Banque de France also forecast a growth in GDP for the 3rd quarter, if only by 0.1 percent. For BNP Paribas, on the contrary, the French economy has clearly entered a phase of recession – a logical consequence, not only of the international economic crisis, but also of national structural problems.
Prime Minister Francois Fillon calls for prioritizing corporate competitiveness. He rejects a state-funded economic programme which is to stimulate demand. Industrial output in the second quarter fell 1.6% on the previous quarter, which does not bode well for the third quarter. Apart from equipment goods (+0.9%) all other sectors made losses: agricultural and food industry (-1.6%), consumer goods (-1.9%), automotive industry (-5.8%), interim products (-1.9%), energy (-0.1%) and construction industry (-1%). The prospects for the aviation industry are dimmed by the euro/dollar parity; regarding equipment goods (mechanics, electronics, tools), a reduced capacity utilisation is raising worries. Actually, only shipbuilding remains to be a bright spot, with the wharf of Saint-Nazaire planning to create up to 8,000 new jobs this year.
Thus, a limitation of the public budget deficit to 2.5% of GDP no longer seems realistic, as well as a 2% target for 2009. The government would be satisfied to maintain last year’s 2.7% result – when GDP growth was at a surprising 2.1%. There is hardly any scope on the expenditure side, while the latest budget report mentions worries about a possible 3 to 5 billion financial loss on the revenue side. To sum it up, an additional gap of 7 billion euros might open up and push the deficit towards 3% of GDP.
The balance of trade recorded a 24 billion euro deficit in the first six months, an increase of 54% against the first six months in 2007. The deficit annualised up to June 2008 amounted to 48 billion euros, thus clearly exceeding the deficit accumulated in 2007 (39 billion euros). Exports expanded by 4.9%, and analysts of Euler-SFAC forecast a rise in exports of 4.3% for the full year of 2008, and 3.9% for 2009.
Simultaneously, foreign direct investment records clearly demonstrate that French corporations have been increasingly attracted to production sites abroad. Until mid-year 2008, French foreign investments amounted to 189 billion euros over the year, well above the results of the two previous years, 2007 (+15 %) and 2006 (+100 %). In return, foreign companies invested in France an annualized amount of just 109 billion euros until June 2008.
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