French Recovery Stalls as Taxes Dent Consumer Spending

Photographer: Balint Porneczi/Bloomberg

The standstill shows the difficulty faced by Hollande as he simultaneously seeks to overhaul Europe’s second-largest economy, revive growth and cut joblessness that’s at a record high. Close

The standstill shows the difficulty faced by Hollande as he simultaneously seeks to... Read More

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Photographer: Balint Porneczi/Bloomberg

The standstill shows the difficulty faced by Hollande as he simultaneously seeks to overhaul Europe’s second-largest economy, revive growth and cut joblessness that’s at a record high.

France’s economic recovery stalled in the first quarter as tax increases used by President Francois Hollande to cut the budget deficit squeezed consumers.

Gross domestic product was unchanged in the period, compared with a revised 0.2 percent gain in the previous three months, national statistics office Insee said in an e-mailed statement. That’s below the median estimate of 28 economists in a Bloomberg survey for a 0.1 percent increase.

The standstill shows the difficulty faced by Hollande as he simultaneously seeks to overhaul Europe’s second-largest economy, revive growth and cut joblessness that’s at a record high. While he is trying to assuage voters by pointing to signs of recovery, his appeals have fallen on deaf ears, pushing Hollande’s approval rating to an all-time low.

“The biggest factor right now is consumer spending,” said Dominique Barbet, an economist at BNP Paribas SA in Paris. “What’s worrying beyond the first quarter is that the level of growth is weak. There’s no acceleration. We don’t have the recovery that other countries are seeing.”

U.K. GDP surged 0.9 percent in the first quarter. Germany and Italy probably had growth of 0.7 percent and 0.2 percent, respectively, according to Bloomberg surveys of economists. Both countries report quarterly GDP today.

Approval Plummets

Consumer spending fell 0.5 percent in the first quarter, Insee said.

The economic struggle has translated into record low popularity ratings for the Socialist president, who took office two years ago and has three more left before the end of his term. An OpinionWay poll this week showed that just 18 percent of voters approved of his performance, the lowest ever. French joblessness remains at more than 3 million.

In a radio phone-in program last week, Hollande said the turning point has arrived after two years of almost no growth.

“When I say things are turning it’s because they are,” he said on RMC radio. “We have taken measures that will bring us results.”

Voters are feeling the brunt of Hollande’s deficit-reduction plan in the form of higher taxes. French taxes increased by about 70 billion euros ($96 billion) in the last three years. Government levies amount to more than 46 percent of GDP, the highest in the euro area. The weight of the increases is being felt now as voters prepare their 2013 tax filings, for which the first deadline is May 20.

Hollande has promised no further increases in taxes. In an attempt to head off complaints, Prime Minister Manuel Valls is now promising to reduce payments for 650,000 of the lowest-paid workers.

‘Intolerable’ Taxes

“The level of taxes in our country has become intolerable,” Valls said in the National Assembly.

Hollande and Valls have pledged to cut government spending by 50 billion euros before the next presidential election. That plan is riling parts of the electorate, notably state employees who’ll have a wage freeze that began in 2010 extended until 2017. Seven unions are planning marches across France at 2 p.m. today.

“Austerity policies have been weighing on us for years,” the UNSA CDC union said on its website. “Employees -- public and private -- are losing purchasing power.”

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

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Paul Abelsky, Vidya Root

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