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French Economy to Shrink in 2013 as Investment, Spending Slump

French gross domestic product will probably drop this year after stalling in 2012 as households trim spending and companies slash investment, national statistics office Insee predicted.

Europe’s second-largest economy is set to shrink 0.1 percent in 2013, Insee said. After dropping 0.2 percent in the first quarter, GDP will rise 0.2 percent in the second and hold steady in the third before increasing 0.1 percent in the fourth, the Paris-based statistics office estimated.

The forecast is the latest to suggest that President Francois Hollande’s expectation of 0.1 percent growth this year may be optimistic as consumers and companies digest roughly 50 billion euros ($66 billion) of tax increases voted by his government and his predecessor’s over the past two years.

“The business climate in France remains poor,” Insee said. “Investment by non-financial enterprises should continue to fall over the forecasting period. The context is likely to remain unconducive to any expansion of production capacities.”

Lack of growth may make it harder for Hollande to keep promises to boost employment and cut the budget deficit.

Non-farm payrolls are likely to shrink by 114,000 in all of 2013, while the unemployment rate climbs above 11 percent, Insee said.

That will further weigh on consumer spending, which will probably drop 0.1 percent in the full year. A drop in investment by non-financial corporations will likely accelerate to a 2.6 percent drop in 2013 from a 1.2 percent decline in 2012, Insee said.

Foreign trade will probably contribute a 0.1 percent boost to GDP, the forecasts show.

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