The French economy contracted in the three months to March 2013 for the second quarter in a row, the rule of thumb for recession. Fixed investment, net exports and household consumption dragged on gross domestic product (GDP), while government spending contributed to it.
In fact, the economy will remain under pressure in the coming quarters from rising unemployment, tight credit and higher taxation. Weak private and public sector hiring will push up the unemployment rate, fuelling workers’ fears about job security. Companies will freeze hiring and/or shed staff – and delay business investment – as the recession squeezes profit margins. President Francois Hollande wants to hire an additional 60,000 teachers and 5,000 police officers but has been slow to do so because of fiscal slippage. The number of job seekers rose for a 19th consecutive month in March to a record high.
Indicators of activity in the second quarter have improved a little but remain weak. The French central bank’s business confidence index rose in April to a two-month high but remains below its long-term average. Similarly, purchasing managers’ indexes for both manufacturing and services climbed to four-month highs in April but remained in territory associated with contraction. However, the French economy will start to recover in the second half of this year as the easing concern about the debt crisis provides greater support to consumer and business confidence.
