French GDP Rises as Hollande Copes With Stop-Start Recovery

The French economy expanded in the fourth quarter as President Francois Hollande struggled to secure a sustainable recovery and reduce unemployment.

Gross domestic product grew 0.3 percent in the three months through December, national statistics office Insee said today. Economists expected a 0.2 percent gain, according to the median of 32 estimates gathered by Bloomberg News.

With growth in only two of the past four quarters and a full-year expansion of 0.3 percent, Hollande failed to meet a promise to a reverse a rise in jobless claims last year. The figures will be scrutinized by the European Central Bank, which said last week that incoming data will determine whether it adds stimulus next month to combat deteriorating price pressures.

“The risk is that the fourth quarter rebound is strong but temporary,” said Michel Martinez, an economist at Societe Generale in Paris. “The first quarter will probably be quite weak. The government has made some progress but there is a long way to go.”

The lackluster economic performance and Hollande’s record-low popularity prompted him last month to promise a payroll-tax cut and reductions in public spending -- an initiative billed as a major political shift for the Socialist president.

Hollande’s political turn toward business may be helped by improving economic fortunes. Investment by non-financial companies rose 0.9 percent in the fourth quarter, the only increase last year, while international trade contributed 0.2 points to growth. Total investment, including by the government, rose for the first time in almost two years.

Deflation Worries

Yet the task of spurring the expansion and cutting debt grows harder for Hollande and other European countries as inflation ebbs, analysts say. Consumer prices in the 18-nation euro zone rose 0.7 percent in January from a year earlier, less than half the ECB’s goal of just below 2 percent.

“The dis-inflationary trend is getting dangerously close to actual deflation,” said Bill Witherell, chief global economist at Cumberland Advisors in New Jersey. “Deflation would raise real debt burdens, a serious concern for the weaker member countries.”

France’s public debt is on track to reach 2 trillion euros ($2.7 trillion), or 95 percent of GDP by the end of 2014, national auditor Didier Migaud said this week. A combination of weak growth and a weaker-than-expected increase in tax receipts means that Hollande may have also missed his target of cutting the budget deficit to 4.1 percent of GDP in 2013, Migaud said.

For now, the government is counting on its plans for the payroll-tax cut to revive investment and bolster growth above its current forecast of 0.9 percent this year.

“I’m saying, let’s go further,” Finance Minister Pierre Moscovici said today on France 2 television. “We need to go further if we want to create jobs and reduce unemployment.”

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