European Economies: French Growth Slows More Than Expected
May 20 (Bloomberg) -- French economic growth slowed more than expected in the first quarter, stoking opposition to President Jacques Chirac and setting back efforts to win support for the European Union constitution in a May 29 referendum.
Gross domestic product in Europe's third-largest economy grew 0.2 percent from the October-December period, when it expanded a revised 0.7 percent, Insee, the Paris-based government statistics office, said. Economists surveyed by Bloomberg expected a 0.5 percent gain, the median of 26 forecasts showed.
``Opponents of the constitution will be at ease to ask: what's the plan for growth?'' said Nicolas Sobczak, an economist at Goldman Sachs Group Inc. in Paris, who said he's cutting his 2005 growth forecast to as low as 1.4 percent from 1.7 percent. The GDP figure will embolden critics to step up attacks on EU budget policies and the European Central Bank for its refusal to consider interest rate cuts, he said.
France, which last year contributed the most to expansion among the 12 nations sharing the euro, is adding to the region's deteriorating outlook. The slowdown and a French 10.2 percent unemployment rate are fueling dissent against the EU treaty, which requires unanimity among the 25-nation bloc.
``Last year, France was the domestic demand powerhouse of he euro zone,'' said Ken Wattret, an economist at BNP Paribas SA in London, which forecast 0.4 percent growth. ``These figures suggest that's coming to an end.''
Weaker Euro
The euro slid after the GDP report. The currency fell 0.2 percent to $1.2616 at 1:36 p.m. in Paris. It has weakened almost 7 percent against the dollar this year.
Unlike the U.S. and Japan, European statistics offices don't provide annualized growth figures. Maryse Pogodzinski, a Paris- based economist at JPMorgan Chase & Co., estimated first-quarter growth was an annualized 0.8 percent, compared with 3.1 percent in the U.S.
The French economy's growth slowed to 1.7 percent from the year-ago period, the first time it dipped below 2 percent since the fourth quarter of 2003, as higher energy costs curbed exports, hiring, consumer spending, and industrial output. Growth in the fourth quarter of 2004 was lowered from 0.9 percent.
Chirac's Popularity
Chirac's popularity plunged to the lowest in eight years, boosting opposition to the EU constitution, according to a survey conducted this week by polling company BVA and released today.
His approval rating fell 9 points to 39 percent this month, according to a survey of 1,014 people. No margin of error was given. That's the lowest approval rating since April 1997. Opposition to the EU treaty rose 1 point to 53 percent, a separate BVA survey of 963 people showed, the fifth this week to show supporters in the minority.
``France is the heart of the European Union and I can't imagine we can continue with integration without it,'' Elmar Brok, a member of the European Parliament from Germany's Christian Democratic Union, said in an interview today.
Bank of America Corp., JPMorgan, and Ixis, the investment- banking unit of French lender Caisses d'Epargne, joined Goldman in cutting 2005 growth estimates for France.
France's slowdown may force the European Union to lower its estimate of 0.5 percent first-quarter growth, though that won't be known for sure until Spain reports GDP figures on May 25, an EU official said today.
Europe Slowdown
Italy fell into recession in the first quarter, domestic demand in Germany declined, and the European Commission cut its second-quarter growth forecast.
The commission pared its 2005 growth forecast for the euro region to 1.6 percent from 2 percent on April 4 and said there are risks to the new estimate. The commission also predicted U.S. expansion of 3.6 percent this year, making this the 13th year in the past 14 euro region growth will trail the U.S.
``Unfortunately, things aren't very dynamic in Europe or in France,'' LVMH Moet Hennessy Louis Vuitton SA Chief Executive Bernard Arnault told shareholders at an annual meeting in Paris on May 12.
The rise in crude oil, which reached a record $57.65 a barrel on April 4, crimped corporate profits and led to a first-quarter loss at Air France-KLM, Europe's biggest airline. A barrel of Brent crude closed at $48.1 at in London yesterday.
The French economy may slow this year, Bank of France Governor Christian Noyer said May 18. The bank estimates first- quarter and second-quarter growth of 0.4 percent and 0.5 percent, respectively.
`A Little Weak'
``We're on a trend that's closer to 2 percent than to 2.5 percent,'' Noyer said on France's I-television. The 2 percent level ``is a little weak compared to what France can give.''
Faltering growth is prompting companies to cut jobs and seek revenue elsewhere. STMicroelectronics NV, Europe's second-largest maker of semiconductors, said May 16 it will cut 3,000 jobs in Europe and the U.S. by next year. Some of the positions will be relocated to Asia.
Industrial production in France stagnated in the first quarter as falling output of cars, machinery and components offset rising production of energy and consumer goods.
French consumer spending, which accounts for 54 percent of French GDP, rose 0.7 percent in the first quarter from the fourth, when it increased 1.1 percent, Insee said today.
Part of the increase in spending was on imported goods such as flat-screen televisions and cars. Exports fell 0.1 percent while imports rose 0.6 percent. As a result of slowing growth, manufacturers pared inventories. Inventory fluctuations cut 0.1 point from growth.
Rate Expectations
Net trade shaved 0.2 point off GDP growth in the first quarter. Government spending fell 0.5 percent, the first drop since fourth quarter 2001. Corporate investment climbed 1.6 percent in the first quarter, after gaining 1.9 percent in the previous three months.
Investors have all but abandoned expectations that the ECB will follow the Fed and raise rates this year, futures trading suggests. The rate on the December Euribor interest-rate future was 2.19 percent at 8 a.m. in Paris, down from 2.64 percent at the start of the year.
The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999. The Euribor three-month money market rate was 2.13 percent.
Opponents of the EU constitution have singled out the ECB for criticism, saying it should focus on growth as well as fighting inflation.
``We want a euro policy which is in the interests of Europe,'' said Laurent Fabius, the Socialist party's deputy leader who opposes the treaty. ``Not everyone supports the statute of the ECB. There is a disconnect between the social aspects of the treaty and the social system in France.''
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