Gloomy reality bites as France joins list of economies sliding into recession

Published by rudy Date posted on February 16, 2009

PARIS: For a while France was able to say it had dodged the worst of the global economic crisis, but now jobs are being slashed across the country, recession is inevitable and social discontent is rampant.

Last week national champions such as Air France-KLM, Europe’s biggest airline, and PSA-Peugeot-Citroen, Europe’s second biggest carmaker, announced massive losses and plans to cut spending and shed thousands of jobs.

The announcements came as the government said France would finally suffer the same fate as most of its neighbors and slump into recession in 2009.

The French economy miraculously managed to expand by 0.1 percent in the third quarter of 2008 after contracting in the second, thereby narrowly averting recession, defined as two successive quarters of negative growth.

But the latest official data released on Thursday showed that the economy shrank by 1.2 percent in the fourth quarter of 2008, prompting the government to concede that recession was inevitable this year.

“After having been one of the rare European countries where economic activity increased in the third quarter, France . . . suffered from the negative effects of the financial crisis,” Finance Minister Christine Lagarde said.

She attributed the fourth quarter results to a pronounced fall in company inventories, “a sign of hesitancy in the face of a very uncertain climate,” as well as to “a crisis in the auto sector.”

Car manufacturing employs one French worker in ten, but the sector has fallen on such hard times that President Nicolas Sarkozy plans to lend PSA Peugeot Citroen and Renault three billion euros ($3.9 billion) each.

This allegedly protectionist measure—which is being examined by the European Commission to make sure they do not break competition law—came in exchange for a promise not to shut French plants or sack French workers.

Peugeot said Wednesday it had lost 343 million euros in 2008—having made 885 million in profit the previous year—and forecast that the European market for new cars would shrink by another 20 percent in 2009.

There was also bad news from smaller rival Renault a day later when it revealed an operating loss in 2008 and said it would focus on freeing up cash this year to weather even worse market conditions ahead.

Contributions from firms in which the French company has stakes, notably Japan’s Nissan, allowed Renault to hold its head above water and turn a profit of 599 million euros, but that was down 78 percent on the year.

Almost every day in France brings more reports of factories or companies shutting down or slashing their workforce.

The latest figures, released early February, showed that unemployment soared by 45,800 to 2.11 million in December, following what Lagarde dubbed an unprecedented collapse in industrial output.

The figures bring France’s unemployment rate to around 8 percent. The European Commission predicts the rate will hit 9.8 percent by the end of this year and 10.6 percent in 2010.

This soaring unemployment brought more than a million strikers out on to the streets in late January to demand government action to raise wages and living standards and to protect jobs.

President Sarkozy, who came to power 21 months ago promising to cut taxes and trim France’s public administration, has announced a 26-billion euro stimulus package.

But his left-wing critics accuse him of shoveling billions into banks and industry while ignoring direct help for consumers.

Union bosses have vowed to keep up the pressure on Sarkozy, whose approval rating has collapsed to its lowest level since he took office.

They are threatening another day of countrywide street protests and major strike action on March 19 if he fails to come up with new measures and review his reform program when he meets with them next Wednesday.

But the president vowed to continue his reforms, including a pledge to shrink the size of France’s public sector by replacing only one in two state employees who retire, and has ruled out a boost to the minimum wage.

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