French Trade Gap Swelled to Record in 2011

France’s trade deficit widened to a record in 2011, underlining a drop in competitiveness that President Nicolas Sarkozy wants to counter with a cut in corporate payroll taxes.

The shortfall swelled to 69.6 billion euros ($91 billion) last year from 51.5 billion euros in 2010, the trade ministry in Paris said today. Exports climbed to 8.6 percent to 429 billion euros, outpaced by a 12 percent increase in imports to 498 billion euros.

As the euro-area crisis enters its third year, and with a presidential election less than three months away, the deficit has become a political issue as a symbol of France’s decline. Sarkozy wants to raise the nation’s sales tax rate to finance a cut in payroll levies that he says penalize industry. Socialist candidate Francois Hollande instead wants to create a public investment bank to finance research and development.

“France’s trade deficit has been deteriorating for a decade, and it’s about competitiveness, it’s obvious,” said Michel Martinez, an economist at Societe Generale SA in Paris. Whoever wins the election needs “to address this.”

External trade created a drag of 0.3 percentage points on French gross-domestic-product growth last year, the trade ministry said. The 2011 deficit represents about 3.5 percent of output, according to estimates from BNP Paribas.

Market Share

France has suffered a trade deficit every year since 2002. The ministry estimates that the nation’s share of global trade has declined against its European neighbors, as well as other developed countries including Japan and the U.S.

Between 2000 and 2010, German manufactured exports rose 126 percent, according to data from the World Trade Organization. France’s 50 percent increase in exports undershot Italy’s 72 percent gain.

“The market share we’ve lost over the past 10 years has been lost to Europeans,” Trade Minister Pierre Lellouche told journalists today in Paris. “The problem is at home, it’s not abroad. It’s up to us to do reforms.”

About 61 percent of French exports went to the European Union last year, compared with 12 percent to Asia and 9 percent to the Americas. Germany bought 17 percent of French exports.

In addition to the trade deficit, Sarkozy has presided over increasing unemployment, a surge in the national debt and the loss of the nation’s AAA credit rating during his five years in office.

Election Fight

The first round of the presidential election will take place on April 22, followed by a second and decisive round on May 6. Hollande had support of 59 percent of voters, compared with 41 percent for Sarkozy, according to an Ipsos-Logica Business Consulting poll asking respondents how they would vote if both candidates get through to the second round.

Sarkozy “has a clear and cold view of his term in office: the loss of jobs in industry and the rise of unemployment,” Bernard Cazeneuve, a spokesman for the Hollande campaign, said Jan. 29 after Sarkozy announced the sales-tax increase. The problem is “all the solutions that he’s proposing he has already tried and so far their result has been calamitous.”

Lellouche, the trade minister, said today that a turnaround takes time and that an increase in exports to emerging market countries and halt in the decline in the number of French exporting companies suggest the situation is stabilizing.

Germany is in surplus today because it began work 12 years ago,” he said. “These are subjects that haven’t been looked at in France since” presidents such as Charles de Gaulle and Georges Pompidou were in office.

German Output

Nevertheless, data today showed German industrial output unexpectedly dropped the most in three years in December as the debt crisis weighed on confidence and the global economic slowdown damped demand.

Among its trading partners, France’s deficit was biggest with China at 27 billion euros.

“This is not sustainable in the long term,” Lellouche said. “I can tell you that when I meet my Chinese counterparts, the discussion is animated; that’s because we have problems there.”

In the U.S., an index of economic optimism probably rose to 48.6 this month from 47.5 in January, according to a Bloomberg survey of economists before the release by Investors Business Daily and TechnoMetrica Market Intelligence. A reading below 50 signals a negative outlook.

In Australia, the central bank today unexpectedly kept interest rates unchanged as two cuts late last year help the economy weather Europe’s debt crisis, sending the nation’s currency soaring to a six-month high.

Elsewhere in Asia, the Indian government said economic growth probably slowed to 6.9 percent in the year through March from 8.4 percent in 2010-2011. The forecast is less than the 7 percent median estimate in a Bloomberg News survey of 15 economists.

In China, stocks fell after the country’s Ministry of Industry and Information Technology said industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens. The Shanghai Composite Index tumbled 1.7 percent at the close today.

Taiwan’s exports fell for the first time in more than two years in January, according to a separate report. Shipments abroad declined 16.8 percent from a year earlier, compared with a 0.6 percent gain in December, the Ministry of Finance said in Taipei today. The median of 11 estimates in a Bloomberg News survey was for a 17 percent drop.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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