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Business

Recession looms larger in France

Economic activity in France is set to contract in the third quarter, making a full-blown recession in Europe's second-biggest economy ever more likely. A slump would put President Francois Hollande in a tight spot.

The French economy was expected to contract by 0.1 percent in the months July through September, the Bank of France said Monday.

According to the French central bank, this was the first quarter of shrinking economic output since France came out of recession in 2009 and followed zero growth in the second quarter of 2012.

A full-blown recession, which is defined as two consecutive quarters of contraction, is likely to return to France as prospects for a pick-up of economic growth are dim.

British research firm, Markit, said that further contraction was "on the cards" for the French economy, according to its PMI index, gauging the opinions of European purchasing managers.

French President Francois Holland said Sunday that he expected economic growth for the whole year to be "barely above zero" - in line with an OECD forecast of just 0.1 percent growth.

Slower growth, or even a recession, will make it harder for France's new Socialist government to meet its EU obligations to reduce the country's public deficit to 4.5 percent of Gross Domestic Product (GDP) this year.

In addition, it would thwart Hollande's plan to cut the deficit back to the EU limit of three percent next year - a pledge, he said France needed to honor if it were to maintain its credibility in financial markets.

In an effort to raise an extra 20 billion euros ($25.5 billion), needed by Hollande to meet EU obligations, parliament in Paris on Monday adopted France's biggest tax hikes in decades.

uhe/pfd (dpa, AFP)