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Last Updated: Tuesday, 29 April, 2003, 07:03 GMT 08:03 UK
French economy shrinks
Arc de Triomphe, Paris
The French economy was shrinking in the last three months of 2002, new figures show.

Previous estimates of slight growth have proved over-optimistic, with the latest statistics showing the economy contracted by 0.1% during the three month period.

The bad news about the state of the French economy, the second largest in the eurozone, coincides with equally gloomy data about business morale.

French business sentiment slumped for the second consecutive month in April as the Iraq war hit confidence, according to official figures.

FRENCH ECONOMIC GROWTH
Q1 2002: +0.7%
Q2 2002: +0.5%
Q3 2002: +0.3%
Q4 2002: -0.1%
Businesses have also been unsettled by publicity campaigns urging US consumers to boycott French products, including high-profile exports like wine and cheese.

Despite the clutch of worrying statistics, the French economy is still predicted to grow by 1.2% this year.

The latest raft of figures also confirm that the public deficit rose to 3.1% of gross domestic product in 2002, more than double that of the previous year and in breach of EU rules.

FRENCH BUDGET DEFICIT
2000: 1.4%
2001: 1.5%
2002: 3.1%
Forecast for 2003: 3.7%
The 12 members of the eurozone are required to keep their budget deficits to below 3% of GDP in order to ensure stability.

Earlier this month, the European Commission criticised Paris for not taking adequate steps to reduce its deficit, and warned that it could rise to 3.7% of GDP this year.

It is the first time that official figures have confirmed that France has broken the rules.

Analysts thought the bad news from France, together with a weak survey on business confidence from Germany on Monday, would encourage the European Central Bank to cut interest rates later this month.


WATCH AND LISTEN
The BBC's Patrick Bartlett
"All this will add pressure on the European Central Bank to cut interest rates "



SEE ALSO:
France halves growth target
17 Mar 03  |  Business
France freezes tax cuts
07 Mar 03  |  Business
France busts deficit limit
06 Mar 03  |  Business


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