French Economy Barely Grows as Hollande Faces Jobless Surge

France’s President Hollande
Francois Hollande, France's president. Photographer: Balint Porneczi/Bloomberg

France’s economy barely expanded in the third quarter, underlining the challenge President Francois Hollande faces in addressing the stagnation that is extending into its second year.

Gross domestic product rose 0.2 percent in the quarter from the previous three months when it fell a revised 0.1 percent, national statistics office Insee in Paris said today in an e-mailed statement. Economists had forecast no change, according to the median of 25 estimates in a Bloomberg News survey. GDP rose 0.2 percent from a year earlier.

“The third quarter is probably the result of a temporary rebound at the European level,” said Michel Martinez, an economist at Societe Generale in Paris. Business sentiment suggests the French “economy is heading to a moderate recession or at best remaining flat.”

With unemployment climbing and his popularity sliding, Hollande is seeking to revive the competitiveness of Europe’s second-largest economy by offering companies a 20 billion-euro ($25.5 billion) tax cut starting next year and pressing unions to offer more labor flexibility. Still, the strategy may take time to pay off and surveys show business confidence near three-year lows.

The second-quarter GDP decline announced today was the first in more than three years. Yet the economy has been more or less flat since the first three months of 2011, which was the last time it had a quarterly gain of more than 0.2 percent.

Exports, Investment

Growth in the most recent quarter was driven by recoveries in exports and consumer spending, while investment, which powered France’s recovery from the last recession in 2009, slumped. Household spending rose 0.3 percent after a 0.2 percent drop previously, while external trade contributed 0.3 percent to growth after declines in the previous two quarters. Investment by non-financial companies fell 0.4 percent.

“This resilience is unlikely to be sustained in the fourth quarter, when we see France’s GDP growth going negative as headwinds build,” said Thomas Costerg, an economist at Standard Chartered in London. “The continued labor-market deterioration is likely to dampen consumption, while decelerating European trade affects exports.”

Companies are holding off expansion as Hollande prepares to introduce 30 billion euros in tax increases and spending cuts next year to shrink the budget deficit and recession across southern Europe cuts export demand.

Job Cuts

Manufacturers including PSA Peugeot Citroen SA and Alcatel-Lucent have announced thousands of job cuts in recent months, driving up unemployment to its highest since 1999.

Medef, France’s many business lobby, is asking unions to agree to ease restrictions on firing and reduce jobless benefits as part of negotiations initiated by Hollande to improve France’s competitiveness, Les Echos newspaper reported today.

Hollande this week rejected calls for “shock” measures to jumpstart the economy and asked be judged on jobs and growth at the end of his five-year mandate.

“The question that matters in my eyes isn’t the state of opinion, it’s the state of France in five years,” he said this week in a 2 ½-hour press conference in Paris, the first of such semi-annual gatherings he has promised. “I want to be judged, when the time comes, on employment and growth.”

Six months after gaining office, the Socialist president is struggling to retain support from those who voted for him while convincing critics including the International Monetary Fund that he’ll modernize Europe’s second-largest economy amid the region’s three-year-old sovereign debt crisis.

About 38 percent of French voters approve of Hollande’s performance as president, down from 62 percent in May, according to a BVA poll published in today’s Parisien newspaper. The survey of 1,000 voters was taken after Hollande’s press conference this week. It has a margin of error of about 3 percent.