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Last Updated: Wednesday, 20 August, 2003, 07:27 GMT 08:27 UK
French economy in trouble
Arc de Triomphe, Paris
New fears have been raised over the health of Europe's economy after France reported negative growth.

The French economy shrank by 0.3% during the April to June period, official figures revealed.

France's economy, the second largest in the eurozone, steadily weakened during 2002.

However, marginally more upbeat figures in the first three months of 2003 had raised hopes of an improvement.

But the latest contraction will dash hopes of a turnaround and is likely to weigh heavily on investor sentiment.

Q1 2002: +0.7%
Q2 2002: +0.5%
Q3 2002: +0.3%
Q4 2002: -0.1%
Q1 2003 +0.2%
Q2 2003 -0.3%
Earlier this month, both Germany and Italy announced they had fallen into recession after recording two consecutive quarters of contraction.

"We are very disappointed with this figure.... this is very negative for France," said Irina Topa, an economist at Societe Generale.

Job uncertainty

France's Prime Minister Jean-Pierre Raffarin said last month he expected the economy to grow 0.1% during the second quarter.

European countries in recession
And the unexpected contraction spells trouble for the government, which desperately needs growth to generate more tax revenues in order to try to rein in the public sector deficit.

"We expected better figures than this but it seems that, despite the drop in inflation, the bad state of the job market has weighed on consumers," said Jean-Louis Mourier, an economist at Aurel Leven.

Amongst France's economic difficulties, exports dropped by 0.6% and consumer spending eased by 0.2%.

Despite the first half year's poor performance, Mr Raffarin still predicts an expansion of 0.8-1.5% for the year as a whole.

"The second quarter was exceptional owing to the consequences of the war in Iraq, the poor international economic climate and recession affecting several of our partners. It does not represent a trend," a ministry statement said.

The BBC's Chris Bockman
"Rationing access to health care could be a very bitter pill for the French to swallow"

Italy slides into recession
08 Aug 03  |  Business
Germany falls into recession
14 Aug 03  |  Business
French economy shrinks
29 Apr 03  |  Business
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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