France Slips Into Recession, Adding Pressure on Hollande

The French economy fell back into recession, increasing pressure on President Francois Hollande to adopt policies to revive growth.

Gross domestic product shrank 0.2 percent in the three months through March, following a revised 0.2 percent contraction in the previous quarter, national statistics office Insee said today. Economists expected a 0.1 percent drop, the median of 25 forecasts gathered by Bloomberg News showed.

Celebrating his first anniversary in office today, Hollande is struggling to reduce the number of jobseekers from a record 3.22 million and lift his popularity rating from a record low. With the wider euro-area economy set to shrink for a second year in 2013, Hollande has been pushing to slow the pace of deficit cuts in the 17-nation bloc in favor of more pro-growth policies.

“The most important thing now is to create growth and employment,” Finance Minister Pierre Moscovici said this week in Brussels. “We must absolutely fight to have stronger growth in 2014 and to have the start of that growth in 2013.”

Across the euro area, GDP shrank 0.2 percent in the quarter, the European Union’s statistical office said today. Germany, the region’s largest economy, posted an expansion of 0.1 percent, less than economists expected.

Euro-area GDP will drop 0.4 percent this year after a 0.6 percent decline in 2012, according to European Commission forecasts released earlier this month.

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The commission said May 3 that it would give France another two years to reduce its deficit to less than 3 percent of GDP, though it said the nation’s lack of competitiveness is as much a part of the problem as the lack of growth in the region.

Hollande needs to press ahead with promises to revamp the nation’s labor law and pension system, the Commission said.

“France badly needs to unblock its growth potential and create jobs,” European Economic Affairs Commissioner Olli Rehn told reporters in Brussels on May 3. The country needs to “put a renewed and strong emphasis on structural reforms in the labor market, in the pension systems, by opening up closed professions and services markets.”

Hollande traveled to Brussels today to meet with all European commissioners, the first such gathering for a French president since 1997.

In the first quarter, investment by non-financial companies fell 0.8 percent in France, while trade with other countries contributed a 0.2 percent drag on the economy. Consumer spending fell 0.1 percent, Insee said today.

Insee revised its estimate of growth in the first two quarters of 2012, saying the French GDP was virtually unchanged in the first three months of last year before declining 0.2 percent in the second period. Previously it had reported declines of 0.1 percent in each of the two quarters.

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