VZCZCXRO1448
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #6816 2891430
ZNR UUUUU ZZH
R 161430Z OCT 06   ZDK
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 2225
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS PARIS 006816 
 
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: 2006 FRENCH GDP GROWTH REVISED UPWARD 
 
 
¶1. SUMMARY:  The National Statistical Agency revised upward from 2.0 
percent to 2.3 percent its GDP growth forecast for 2006, after 
taking into account the jump in second quarter growth.  INSEE's 
forecast is in line with the government forecast for 2006.  END 
SUMMARY. 
 
GDP Increases 2.3 Percent due a Spurt in Second Quarter 
--------------------------------------------- ---------- 
¶2.  In its October overview of the French economy, the National 
Statistical Agency, INSEE, forecast GDP to increase 2.3 percent in 
2006, revising upward its previous June estimate from 2.0 percent 
following a surprise spurt in Q-2 (annualized) growth of 4.9 
percent, the fastest pace in more than five years.  INSEE forecast 
GDP growth to slow to 2.0 percent (annualized) in Q-4 after 2.4 
percent in Q-3.  INSEE cut its Q-4 forecast from a 2.4 percent 
estimate in June as recent industrial, trade and unemployment 
reports have raised questions about whether fast economic growth can 
be sustained in the second half of this year. 
 
Export Growth Weakens 
--------------------- 
¶3.  INSEE's new Chief Analyst, Eric Dubois, explained that global 
trade will slow down, denting French export performance.  INSEE sees 
exports of manufactured products increasing 3.2 percent (annualized) 
in Q-3, and 7.8 percent in Q-4, compared with 21.0 percent in Q-1 
and 9.5 percent in Q-2.  INSEE assumed the euro will be trading at 
1.27 U.S. Dollar, and oil prices at USD 65 per barrel. 
 
Household Consumption Remains Solid 
----------------------------------- 
¶4.  Dubois underlined that "GDP growth is not blazing; still, growth 
remains robust" thanks to solid household consumption, the biggest 
part of the French economy.  INSEE forecast consumption to increase 
3.2 percent (annualized) in Q-3, and 2.4 percent (annualized) in 
Q-4. Household consumption of manufactured products surged in 
August. Consumption in the second half should be buoyed by a 
decrease in the household savings rate to 14.6 percent, while the 
unemployment rate should decrease to 8.6 percent by the end of 2006, 
the lowest rate since 2001, compared with 9.0 percent in August.  In 
his presentation of the 2007 CG budget, Finance Minister Thierry 
Breton interpreted the increase in consumption as "evidence there is 
greater purchasing power in France."  INSEE expects purchasing power 
to increase 2.3 percent in 2006. 
 
Risks Include U.S. Economic Performance 
--------------------------------------------- - 
¶5.  INSEE sees a possible hard landing of the U.S. real estate 
market, and its impacts on European economies, as a major risk to 
its forecast. Among positive risks, INSEE does not rule out an 
increase in consumption in France and in Europe, including Germany, 
where domestic demand might be stronger than expected by the end of 
2006 as consumers accelerate expenditures in advance of a possible 
value added tax increase in 2007.  Dubois ruled out that an expected 
interest rate increase to 3.50 percent in December, would affect 
significantly domestic demand, including real estate investment, in 
¶2006. 
 
Economists Worry about 2007 Economic Growth 
------------------------------------------- 
¶6.  The consensus of private sector economists forecasts GDP to 
increase 2.3 percent in 2006.  However, Natexis' senior economist 
Marc Touati stressed that the government forecast for 2007 GDP 
growth might be overly optimistic.  Dubois acknowledged "the start 
of 2007 is uncertain at this stage." 
 
Comment 
------- 
¶7.  INSEE's GDP growth forecast for 2006 is in line with the 2.0-2.5 
percent range forecast by the government.  INSEE, which is also part 
of the government, can hardly be expected to contradict finance 
ministry estimates seven months before presidential elections. 
However, INSEE's terser-than-usual pronouncements with respect to 
downside risk may indicate that it expects somewhat slower growth 
than the Ministry of Finance going forward. 
 
STAPLETON#