France, Eurozone's Second Largest Economy, to Slip into Recession Again in Three Years
The eurozone's second largest economy, France, is headed for another recession by the third quarter of the year, said the nation's central bank on Wednesday, with the newly-elected Hollande government expected to be forced into deep spending cuts in order to balance the country's books.
In its first estimate for the third quarter of 2012, the Bank of France said that the nation's GDP was likely to fall by 0.1 percent in the three months to September, which was in stark contrast to the government's optimistic forecast of 0.3 percent growth for the whole year.
Additionally, France's trade deficit remained at a close to record high, withimports outstripping exports by 34.9 billion euros ($43.2 billion) in the first half of the year.
According to French Trade Minister Nicole Bricq, these figures reflected a weakening world economy and the crisis in Europe.
"That said, they also reflect a problem with the competitiveness of our businesses. We need far more businesses and we need much stronger businesses," she said, as cited by AFP.
According to the Financial Times, industrial confidence was also at its lowest level since August 2009, with struggling carmakers PSA Peugeot Citroën and Renault a particular worry.
Last month, Peugeot announced that it was closing a plant near Paris and cutting more than 8,000 jobs, which prompted Industry Minister Arnauld Montebourg - an outspoken advocate of protectionism - to call on the European Union to monitor imports of South Korean-made cars.
July car sales in France were down 7.0 percent on a year earlier, while the latest figures put unemployment at nearly 10 percent of the workforce, with a further 5.0 percent working fewer hours than they would like.
"The outlook for the coming months suggests a slight slowdown in economic activity," the Bank of France said.
"If growth is flat or negative in the second and third quarters, it will be very difficult for the government to reach its 0.3 percent growth target this year," added Fabrice Montagne, an economist at Barclays, to Reuters.
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France's national auditor, the Cour des Comptes, has already told François Hollande, the French president, that he will need "unprecedented" savings of about 33 billion euros in order to meet budget targets for next year.
Having elected on an "anti-austerity" platform earlier this year, Hollande will also have to make tough decisions on where to make cuts to spending.
On Wednesday, AFP reported that French government ministers had been issued with spending ceilings for the next 12 months before embarking on their holidays last week.
he new spending ceilings are expected to see major cuts in all areas of the government except for a handful of departments.