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Who's Left Out Of France's Recovery

Business Outlook


As with other European economies, the growth outlook for France is being revised upward. But the healthier economy may do little to alleviate France's high unemployment until at least 1995.

An influx of first-time job seekers pushed the unemployment rate in September back up to its postwar record of 12.7% set in May (chart). The number of job offers dropped 4.7%, and the proportion of long-term unemployed stayed at a steep 36% of all those out of work. The jobless rate had been expected to decline in September, and government officials rushed to downplay the rise.

Despite the uptick in unemployment, other signs point to a recovering French economy. New-car sales in October increased 9.7% from a year ago. Business confidence is at an 18-year high. And the latest survey of French industrial companies shows that demand is expected to continue growing in the fourth quarter, with foreign orders particularly robust. The construction industry also sees conditions improving.

It will take some time for job seekers to benefit from the recovery, though. The surveyed business executives are still not optimistic enough to anticipate much hiring anytime soon. In fact, it is generally agreed that France's gross domestic product must rise by at least 3% to produce any jobs. But in the first half of 1994, GDP grew at a 1.2% annual rate. And a consensus of private forecasters doesn't see growth above 3% until 1995.

The rising number of unemployed complicates the govern-

ment's task of bringing down its huge deficit, now 5.5% of GDP. On Nov. 7, the government projected a deficit of 28.1 billion francs ($5.4 billion) in its social security accounts in 1996 unless it raises taxes.

Moreover, the Bank of France is unlikely to help by cutting interest rates, despite inflation of just 1.6%. If anything, the spread of global monetary tightening may exert pressure on the central bank to lift rates--if only to defend the franc. What helps the French currency, though, is sure to be a hindrance to the French unemployed.

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