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France in denial or bucking the trend?

By Hugh Schofield
Paris

French Finance Minister Christine Lagarde (image from 11 November)
France's finance minister said the news of 0.1% growth was "astonishing"

In France there is a strong sensitivity to what has been dubbed - after the 1986 nuclear disaster - the Chernobyl Syndrome.

To much subsequent public mirth, the government back then announced that - though there was indeed a toxic cloud floating over Europe - the French need not worry because the Chernobyl fall-out had miraculously stopped at their borders. Something to do with winds.

Ever since, whenever there is a piece of good national news that seems to fly in the face of international logic, the memory of Chernobyl is once again humorously invoked.

So today, with the government's announcement that - unlike most of its European neighbours - France has avoided going into recession.

Technically, the news is perfectly accurate.

In the third quarter of 2008 - unlike in the second - the French economy grew. Not by very much - a mere 0.14% - but the salient point is that it did not shrink.

This means that the dreaded spectre of two subsequent quarters of "negative growth" has been sidestepped. France will remain - on paper - free from recession for at least the next six months.

The government of President Nicolas Sarkozy has understandably seized on the "good news" to argue that its policies are working.

Delicate position

Over the last few weeks it has made a series of initiatives - promises of investment in public works projects, a "sovereign wealth" fund to protect industry, new subsidised employment contracts - that it says have boosted confidence and staved off the worst of the global crisis.

But economists warn that though the latest growth figures are certainly less bad than were feared, France remains in a highly delicate position.

"This [data] is what economists would call just 'noise' - in other words statistics which belie the basic trend," says Nicolas Bouzou of Asteres, a financial analysis firm.

"The third-quarter increase makes absolutely no difference to the basic economic fact: in the medium term, economic activity is declining in France, just as it is in all the developed countries."

Here are some reasons why the third-quarter figures need to be kept in perspective

  • The figures predate the worst of the downturn, which happened in October, and all the indicators suggest that industry, services and construction are only now entering the real economic maelstrom
  • Growth was borne up by better-than-expected numbers for industrial investment but industry leaders all say they expect investment to go into reverse in the coming months
  • What little growth there is has no effect on job creation - indeed, quite the contrary: unemployment is continuing to rise

Grounds for hope

So for ordinary French people, the unexpected GDP bonus is something of a fiction.

After all, what is 0.14%? If it looks like a recession and it feels like a recession, then it probably is a recession - even if the egg-heads say that technically it cannot be.

So are we in the Chernobyl Syndrome again?

Maybe. But the same economists who warn of gloom to come also admit there are some grounds for hope.

French households are far less indebted than their British or American counterparts, domestic consumption is bearing up, the banks seem to be in better shape, there will be no property crash, inflation is falling fast and the price of oil is coming down.

The French government may indeed be tempted to exaggerate the strength of the economy, but that does not mean it is altogether wrong.



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