VZCZCXRO2428
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #2088 1420821
ZNR UUUUU ZZH
R 220821Z MAY 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7462
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS PARIS 002088 
 
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:  FRANCE: FIRST QUARTER GDP GROWTH DISAPPOINTING 
 
REF: Paris 1233 
 
¶1. SUMMARY: French GDP growth did not accelerate in the first 
quarter contrary to expectations, increasing only 2.0 percent 
(annualized) compared to the fourth quarter of 2006.  GDP growth was 
still heavily dependent on consumption, but export growth rebounded. 
 INSEE is now using European and U.S. standards (the preceding year 
price basis) to calculate GDP data.  END SUMMARY 
 
The 2.0 Percent Increase in GDP in Q-1 Disappoints 
--------------------------------------------- ----- 
¶2.  GDP (seasonally and work-day adjusted) increased 2.0 percent 
(annualized) in Q-1 as forecast by the National Statistical Agency 
(INSEE) in March (reftel).  But, it was a disappointment for 
outgoing Finance Minister Thierry Breton, who had said on May 7 that 
he thought GDP growth was "on a 2.5-3.0 percent pace in Q-1 and 
Q-2."  The Bank of France and private-sector economists forecast a 
2.4 percent increase (annualized) in Q-1. On May 14 the European 
Commission revised upward its GDP growth forecast for France by 0.2 
percent to 2.4 percent in 2007. 
 
Household Consumption and Exports Drive Growth 
--------------------------------------------- - 
¶3.  GDP was mainly led by household consumption, which showed a 1.2 
percent (annualized) increase in Q-1, while corporate investment 
increased 5.6 percent (annualized).  Despite the strong Euro, 
exports showed a 6.0 percent (annualized) rebound, led in part by 
automobile and capital goods sales.  Domestic demand and foreign 
trade had a positive contribution to GDP growth in Q-1, while 
inventories had a negative impact. 
 
Economists Called for Vigilance 
------------------------------- 
¶4.  Private-sector economists warned that corporate investment has 
been sluggish, and not sufficiently concentrated on innovation. 
Economic growth could be harmed by a new rise in oil prices, a 
further decrease in the USD against the euro or an increase in 
consumer prices.  Inflation remained moderate, but consumer prices 
increased at a faster pace in the last few months (1.3 percent year 
over year in April compared with 1.0 percent in February and 1.2 
percent in March). 
 
INSEE Revised 2005 and 2006 GDP Growth 
-------------------------------------- 
¶5.  Due to a change in methodology, INSEE revised upward 2005 GDP 
growth to 1.7 percent (versus 1.2 percent) and 2006 GDP growth to 
2.2 percent (versus 2.1 percent).  The estimate of GDP growth is now 
based on the preceding year prices, no longer on the 2000 constant 
price basis.  The new method, which is already used in most European 
countries, provides a better estimate of aggregates.  The new 
estimate of the consumption of electronic products takes into 
account the significant regular decrease in prices. 
 
Budget Deficit and Public Debt Decreased in 2006 
--------------------------------------------- --- 
¶6.  INSEE confirmed that the budget deficit and the public debt 
decreased to 2.5 percent from 3.0 percent of GDP in 2005.  The 
public debt decreased to 63.7 percent of GDP in 2006 (versus an 
initial estimate of 63.9 percent). 
 
STAPLETON#