VZCZCXRO8470
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #2791/01 1791435
ZNR UUUUU ZZH
R 281435Z JUN 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 8575
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 002791 
 
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 REMAINS MODERATE 
 
REF: (A) Paris 2741 
 
¶1. SUMMARY: In its June overview, the National Statistical Agency 
INSEE forecast French GDP growth to increase 2.1 percent in 2007 
compared to 2.2 percent in 2006.  It stressed that GDP growth would 
reach 2.5 percent in Q-4 over Q-4 2006 due to solid household 
consumption.  INSEE confirmed that the tax package proposed by the 
President would have moderate impact on 2007 GDP growth.   END 
SUMMARY 
 
GDP Forecast to Increase 2.1 Percent 
------------------------------------ 
¶2.  INSEE, the French national statistical agency, forecast GDP 
growth in France will accelerate from a disappointing 2.0 percent 
(annualized; preceding year price basis) in Q-1 to 2.4 percent in 
Q-2 and 2.8 percent in each of Q-3 and Q-4, for an average of 2.1 
percent in 2007, a slight dip from 2.2 percent in 2006.  GDP growth 
would accelerate in the second half mainly due to solid household 
consumption, and run on a 2.5 percent pace in the fourth quarter 
compared to Q-4 2006. 
 
Consumption Boosted by Household Purchasing Power 
--------------------------------------------- ---- 
¶3.  A mild winter reduced household energy consumption energy in 
Q-1, while purchases of clothing decreased.  The drag on GDP growth 
is estimated at 0.4 percent (annualized).  INSEE forecast a catch up 
in Q-2, although consumption of manufactured products (a partial 
indicator of household consumption) decreased 0.8 percent in May 
after dipping 0.1 percent in April.  INSEE predicts that household 
consumption should rebound in the second half of 2007, boosted by 
increased household purchasing power (3.2 percent compared with 2.4 
percent in 2006).  Improvement would be due to lower inflation 
(average of 1.2 percent compared with 1.6 percent in 2006, but at 
the end of the year, inflation would increase to 1.5 percent based 
on oil prices at 65 USD per barrel and an exchange rate of 1.35 USD 
per euro).  Household consumption would be boosted by dynamic 
employment (300,000 jobs created compared to 256,000 in 2006) and a 
reduced tax burden (reftel).  INSEE forecast the impact of the tax 
package on economic growth to be modest in 2007 since one of the 
major measures, the tax exemption on overtime work, would become 
effective only in October.  INSEE says the impact of other measures 
which are already effective (tax cuts on mortgage interest payments) 
or which will become effective just after the law is passed during 
the summer (tax cuts on inheritances) will be modest.  Consumption 
also reacts with a delay to tax cuts. 
 
¶4.  INSEE indicates that the unemployment rate should decrease by 
the end of the year, but does not propose any forecast, saying that 
in November it will participate in a meeting on employment data with 
the National Council of Statistical Information (CNIS). 
Unemployment data have been at the center of debates in the last few 
months.  INSEE says that the unemployment rate is currently close to 
9.4 percent (versus GOF current estimate of 8.3 percent), but warns 
its latest estimate should not be considered official. 
 
Investment and Export Growth Not Sufficient 
------------------------------------------- 
¶5.  INSEE forecast corporate investment continuing to rise 
moderately in 2007, up 5.4 percent compared to 4.6 percent in 2006. 
INSEE analysts said that export growth should slow at 3.1 percent 
compared to 6.0 percent in 2006, partially due to the impact of a 
strong euro.  The forecast results in a positive 2.5 percent 
contribution of household consumption to GDP growth, while foreign 
trade would have a negative 0.3 percent contribution. 
 
French GDP Growth Lags Behind Euro Zone 
--------------------------------------- 
¶6.  INSEE chief economist Eric Dubois commented "there will be no 
major change in the pace of French economic growth in 2007."  The 
INSEE GDP forecast is marginally lower than the 2.2 percent OECD's 
estimate, below the 2.25-2.5 percent government forecast, and 
compares unfavorably with the 2.4 percent European Commission 
forecast.  Forecasts show the French GDP growth lagging behind the 
2.8 percent euro zone GDP growth in 2007. 
 
Main Risks 
---------- 
¶7.  The risk of a decline in real estate sector prices looks 
limited.  However, INSEE does not rule out an increase in oil prices 
above 65 USD per barrel due to geopolitical factors and higher 
consumption.  No details were provided on possible impacts on GDP 
growth. 
 
COMMENT 
 
PARIS 00002791  002 OF 002 
 
 
------- 
¶8.  INSEE highlights the fact that its estimate is now based on 
preceding year prices, saying the new basis permits direct 
international comparisons and improves estimates of GDP components. 
It is no surprise that household consumption forecasts, based on the 
preceding year price, shows a 2.3 percent increase in 2007 (versus 
2.8 percent in the 2000 price basis), household purchasing power is 
up 2.4 percent (versus 2.9 percent), and consumption of manufactured 
products growth looks much less solid (2.7 percent versus 4.3 
percent).  However, data regarding changes in inventories are no 
longer available; only contribution of inventories to GDP growth is 
available.  Imports of goods and services do not add up.  Ratios as 
a percent of GDP (e.g. investment as a percentage of GDP) are still 
based on estimates in current prices. 
 
STAPLETON#