French growth forecast cut

The war with Iraq is depressing the French economy

The war with Iraq will lead to slower economic growth and more unemployment, France's statistics institute has said.

The Insee institute cut its growth forecast for the first half of 2003 but ruled out a recession provided that the war ended by May.

The French social affairs ministry said on Friday unemployment had edged up 0.1% to 9.2% in February.

There are now 2,343,800 registered unemployed people as the French economy struggles with the global economic slowdown.

Meanwhile, EU Economic and Monetary Affairs Commissioner Pedro Solbes said he still expected the European economy to recover in the second quarter, provided the war would be short.

Bleak scenario

He told a Portuguese newspaper: "We still hope for an upturn in the second quarter, if the uncertainty disappears and if investment and consumption grow in the near future."

Insee said it expected the French economy to grow by 0.3% in each of the first two quarters of this year, which is a revision of last December's prediction of 0.4% growth in the first quarter and 0.6% in the second.

The institute based its forecasts on war in Iraq not going on longer than the beginning of May.

EU Commissioner Solbes based his comments on European economic recovery on the conflict with Iraq being a short one.

But he also did not rule out a much less optimistic scenario, "where there is a relapse in confidence, the situation on the markets worsens, where activity weakens and prices remain high for a long period."

"All those things together could probably result in a recession in Europe, but only in the scenario that I consider less likely," he said.