France's gross domestic product probably shrank by 0.1 percent in the third quarter after a contraction of 0.3 percent in the three months through June, according to the latest Insee estimate. The economy is also likely to shrink 0.1 percent in the final three months to cut growth to 0.9 percent for the full year, the slowest pace since 1993, Insee added.
French President Nicolas Sarkozy introduced 8 billion euros ($11 billion) of tax cuts this year but this has evidently not been sufficient to underpin French growth as surging commodities prices have pushed inflation higher at the same time as global demand has cooled. Sarkozy this week took additional steps in an attempt to support the economy by allowing the government to buy more than 30,000 unfinished homes at a discount in order to prop up the slumping real estate market. French housing starts were down year on year by 13 percent to 394,726 in the June-August period and the weaker demand has begun to drive down the price of existing homes. Sarkozy is also introducing measures to boost loans to small and medium-sized companies by 22 billion euros ($30.4 billion) by the end of 2009, in a attempt to offset the impact of the credit crunch.
``The French economy continues to be hurt,'' Insee's chief forecaster Eric Dubois said at a briefing in Paris yesterday. The current credit crisis ``is an important risk,'' he said, as well as oil prices, ``which have become more volatile.''
INSEE suggest consumer spending will stagnate in the second half of the year while unemployment rises - to 7.8 percent by the end of the year, up from 7.6 percent in the second quarter, according to their forecast. Corporate investment fell 0.2 percent in the third quarter and may well drop a further 0.1 percent in the last three months of the year. Exports rose 0.1 percent but may drop back by 0.2 percent in Q4, while imports were probably down 0.1 percent in Q3 (reflecting the weakening internal consumption) but could rebound and increase at an equivalent pace in the fourth quarter.