French GDP Expected to Grow 1.2% in 2015 Insee

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The FINANCIAL — French economic recovery this year will be slightly swifter than what the government expects as business in the country will be buoyed by cheap oil, a cheap euro and cheap credit in the second half of the year, the French statistics bureau’s half-year forecast showed on June 18, according to Nasdaq.

Insee, as the bureau is known, said French gross domestic product is likely to expand 1.2% this year, a little faster than the official government target of 1%, even though Prime Minister Manuel Valls has said he expected growth could be as much as 1.5%. Insee expects GDP in the third quarter to grow 0.3% from the previous quarter and to grow 0.4% in fourth quarter.

The growth rate would be much higher than the 0.2% registered in 2014 and would be the fastest since 2011.

Even though Insee attributes most of the growth to external factors, the report appears to vindicate President Franç ois Hollande’s shift toward pro-business policy after spending the first two years of his administration trying to unsuccessfully kick-start the economy through spending financed by tax increases.

“Business leaders report that they are significantly more inclined than they were at the start of the year to increase the pace of their investment expenditure,” Insee said.

The report attributes the business optimism to the improved profit margins for companies, possible thanks to the low oil price, easier access to credit helped by the European Central Bank’s monetary policy and the ramp-up of several government initiatives to cut labor costs for employers.

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A series of factors could threaten the somewhat rosy forecast, such as a more severe slowdown in emerging markets than expected, Insee said. But the black cloud hanging over France’s mild recovery is the situation in Greece.

“Our scenario is based on the assumption that an agreement is found between Greece and its creditors to preserve Eurozone stability of the monetary union, but if it should prove otherwise, prospects for the Eurozone would be darker,” Insee said.

The faster expansion this year will allow a stabilization of unemployment at a rate of 10.4% during the second half of the year.

The slow economic growth since the beginning of his administration has dogged Mr. Hollande, who had pledged lower unemployment when elected in 2012. Instead, the number of those jobless has continuously risen to record highs.

Insee said jobless rate decline would be possible with a growth rate higher than 1.6%.

 

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