VZCZCXRO1384
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHFR #5495 2280523
ZNR UUUUU ZZH
R 160523Z AUG 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 0387
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS PARIS 005495 
 
SIPDIS 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT: FRENCH GDP GROWTH SURGED IN Q-2 
 
REF:  PARIS 4417 
 
¶1. SUMMARY.   GDP increased 4.5-4.9 percent in Q-2, mostly due to 
strong growth in domestic consumption and exports.  The GOF 
indicated that GDP growth was running at a 3 percent pace at the end 
of the first semester, but officials are unlikely to revise upwards 
their 2006 GDP growth forecast beyond the current 2.0-2.5 percent. 
2007 GDP growth forecasts are expected to stay in the range of 
2.0-2.5 percent due fears of high oil prices, a strong euro, and a 
U.S. economic slowdown.  End summary. 
 
GDP Increased 4.5-4.9 Percent in Q-2 
------------------------------------ 
¶2.  Based on the National Statistical Agency's (INSEE) flash 
estimate, GDP (seasonally adjusted and workday related) increased 
4.5-4.9 percent annualized in Q-2 compared with 2.0 percent in Q-1, 
the fastest pace since the fourth quarter of 2000. 
 
¶3.  Household consumption continued to stoke the economy in Q-2 
(reftel).  Corporate growth may have contributed to Q-2 growth as 
the production of capital goods recovered, but strong foreign demand 
provided significant support as well.  Exports peaked at a high of 
194.4 billion euros in the first semester. In an interview appearing 
in the newspaper France Soir, Foreign Trade Minister Christine 
Lagarde commented on France's "excellent export figures," 
specifically citing the U.S. as France's number one trading partner 
outside of Europe.  A detailed report on Q-2 GDP growth will be 
published by INSEE on August 22. 
 
Government Trumpets Good News. . . 
---------------------------------- 
¶5.  Finance Minister Thierry Breton proclaimed INSEE's Q-2 GDP 
growth data was "exceptional," and pointed out that it was much 
better than the forecasts of 2.4 and 2.8 percent originally 
predicted by the Bank of France and private economists, 
respectively.  Breton confirmed that GDP growth was running at a 3.0 
percent annualized growth rate as of the end of the first semester 
of 2006. 
 
¶6.  Breton also said that other economic indicators, including 
business and household confidence, showed the French economy is 
doing much better.  The unemployment rate decreased to 9.0 percent 
in June - much earlier than expected.  Despite oil price increases, 
inflation remained moderate.  Consumer prices actually decreased 0.2 
percent in July compared to June, but were up 1.9 percent compared 
with July 2005. 
 
. . . But Remains Cautious 
-------------------------- 
¶6.  Breton is confident that 2006 GDP growth will be higher than the 
official 2.0-2.5 percent estimate, but did not announce an upward 
revision as "life has taught us to be cautious."  In preparing the 
2007 economic forecasts, Finance Ministry specialists are 
considering higher oil prices (USD 75-100 per barrel versus USD 63 
in 2006), a euro close to 1.30 USD, and lower economic growth in the 
U.S., which could ultimately have a significant impact on European 
economies.  They are also taking into account the implementation of 
VAT increases in Germany in 2007, which could also harm the French 
foreign trade (reftel). 
 
Comment 
------- 
 
¶7.  The growth registered in Q-2 means the government will meet its 
2006 GDP growth forecast.  However, consumption is likely to slow in 
the second semester, since the effect of the Soccer World Cup will 
be long over by then. The recovery of consumer spending in Germany 
and Italy, France's main trading partners, remains fragile and 
raises doubts about the continued growth of French exports.  Rising 
interest rates, higher oil prices and the crisis in the Middle East 
do not bode well for the French economy. 
The government is likely to stick to the same "cautious" GDP growth 
estimates of 2.0-2.5 percent in 2007, a range Breton hinted at 
earlier this year. 
 
HOFMANN#