France: The Sluggish Economy Will Hamper Jospin

Like many government officials around the globe, Prime Minister Lionel Jospin of France is grappling with the repercussions of a sagging economy. What will complicate Jospin's actions is the presidential election set for May.

France's economy probably did not grow in the fourth quarter after rising 0.5% in the third. For the year, real gross domestic product likely rose 2%, the slowest pace since 1997. Consumer demand has held up remarkably well, thanks to tax cuts and lower inflation. But capital investment and exports have been hurt by the global recession.

For 2002, the government is forecasting growth of 2.25% to 2.5%, but private forecasters see a gain of only 1.3%. Recent data support the more cautious outlook. In January, industrial activity weakened further, say French purchasing managers. And consumer confidence last month fell for the first time in four months (chart) as consumers worried about weakening labor markets. Although the jobless rate stayed at 9% in December, it has been climbing since the spring. And the number of unemployed rose to 2.4 million in December, the highest level in almost five years.

The weak economy could hamper Jospin's possible move to bolster his Socialist Party's power by running against President Jacques Chirac in May. First, the slowdown--on top of last year's tax cuts--has trimmed revenues. As a result, the 2001 government deficit probably totaled 1.4% of GDP. For 2002, economists expect the deficit to hit 2.1% as increases in welfare spending boost public expenditures. The rising fiscal red ink will make it difficult for Jospin to campaign on the promise of tax cuts.

Second, the government is being blamed for the rise in unemployment. A survey by polling firm BVA showed that 57% of French voters describe government economic policies as "bad," the highest reading in more than a year. Clearly, if Jospin wishes to unseat Chirac, he will have to turn voter sentiment--and job prospects--around quickly.

By James C. Cooper & Kathleen Madigan

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