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TODAY IN FRANCE

French economy grows 0.2% in first quarter

Economy Minister Bruno Le Maire has welcomed better-than-anticipated figures.

Published: 28 April 2023 08:28 CEST
French economy grows 0.2% in first quarter
France's Economy Minister Bruno Le Maire. (Photo by Ludovic MARIN / AFP)

France’s economy grew 0.2 percent in the first quarter on the back of greater industrial production and foreign trade, national statistics agency INSEE has reported.

Economy Minister Bruno Le Maire hailed the “solidity” of the French economy.

“Companies are continuing to invest and create jobs, bringing us closer to our objective of full employment,” he added.

The figure was marginally higher than the 0.1 percent expansion in gross domestic product (GDP) forecast by the statistics agency earlier, and higher than the zero growth recorded in the final quarter of last year.

Household consumption, a key component of economic demand, was flat after having dropped by 1.0 percent in the final quarter of last year.

Inflation has eroded the purchasing power of many French people, raising concerns about a hit to consumer consumption and the overall economy.

Food consumption fell by 2.3 percent as food price inflation hit double digits in France. The drop is the fifth straight quarterly decline.

French households spent more on energy, however, although INSEE said a later payment in subsidies by the government was responsible in part for the increase.

A series of strikes over the first three months of the year over an increases in the minimum pension age had only a limited impact on the economy.

INSEE noted that production at oil refineries actually rose even though strikes there had been more intense in the final quarter of last year.

Manufacturing rose by 0.7 percent and the reopening of nuclear power plants following repairs helped drive a 3.1 percent increase in energy production.

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ECONOMY

France and Italy face spending rebuke from EU

The European Union was expected to issue warnings to France, Italy and several other governments over excessive spending after new budget rules came into force this year.

Published: 19 June 2024 08:59 CEST
France and Italy face spending rebuke from EU

The rebuke comes at a particularly difficult moment for France, where both the far left and far right are piling up spending promises ahead of snap polls triggered by President Emmanuel Macron’s crushing EU election defeat.

This will be the first time Brussels has reprimanded nations since the EU suspended the rules because of the 2020 Covid pandemic and the energy crisis triggered by Russia’s invasion of Ukraine, as states propped up businesses and households with public money.

The EU spent two years during the suspension overhauling budget rules to make them more workable and give greater leeway for investment in critical areas, like defence.

But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit – the shortfall between government revenue and spending – of no more than three percent.

The European Commission will publish assessments of the 27 EU states’ budgets and economies on Wednesday, and is expected to point out that some 10 countries including Belgium, France and Italy, have deficits higher than three percent.

The EU’s executive arm has threatened to launch excessive deficit procedures, which kickstart a process forcing a debt-overloaded country to negotiate a plan with Brussels to get back on track.

Such a move would need approval by EU finance ministers in July.

Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.

In practice, though, the commission has never gone as far as levying fines, fearing it could trigger unintended political consequences and hurt a state’s economy.

The EU countries with the highest deficit-to-GDP ratios last year were Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent), France (5.5 percent) and Poland (5.1 percent).

They may face the excessive deficit procedures, alongside Slovakia, Malta and Belgium, which also have deficits above three percent, according to Andreas Eisl, expert at the Jacques Delors Institute.

The picture is complicated for three other countries, Eisl said. Spain and the Czech Republic exceeded the three percent limit in 2023 but should be back in line this year.

Meanwhile, Estonia’s deficit-to-GDP ratio is above three percent – but its debt is around 20 percent of GDP, significantly below the 60 percent limit.

The commission will look at the states’ data in 2023 but “will also take into account the developments expected for 2024 and beyond”, the expert told AFP.

Member states must send their multi-annual spending plans by October for the EU to scrutinise and the commission will then publish its recommendations in November.

Under the new rules, countries with an excessive deficit must reduce it by 0.5 points each year, which would require a massive undertaking at a moment when states need to pour money into the green and digital transition, as well as defence.

Adopted in 1997 ahead of the arrival of the single currency in 1999, the rules known as the Stability and Growth Pact seek to prevent lax budgetary policies, a concern of Germany, by setting the strict goal of balanced accounts.

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