VZCZCXRO9130
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHFR #0315/01 0631248
ZNR UUUUU ZZH
R 041248Z MAR 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 5674
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1062
RUEHBJ/AMEMBASSY BEIJING 1929
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RUEHBY/AMEMBASSY CANBERRA 1822
RUEHJA/AMEMBASSY JAKARTA 0708
RUEHME/AMEMBASSY MEXICO 0532
RUEHNE/AMEMBASSY NEW DELHI 1293
RUEHOT/AMEMBASSY OTTAWA 2304
RUEHSA/AMEMBASSY PRETORIA 1731
RUEHRH/AMEMBASSY RIYADH 0451
RUEHUL/AMEMBASSY SEOUL 1661
RUEHKO/AMEMBASSY TOKYO 2937

UNCLAS SECTION 01 OF 02 PARIS 000315 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA AND EUR/WE 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PREL FR
SUBJECT:  FRANCE: LATEST ECONOMIC TRENDS 
 
REFS: PARIS 0081 
 
¶1. (SBU) SUMMARY:  With unemployment near 8% (and rising) and the 
French economy expected to contract 1.5% in 2009, France is facing 
up to a deeper recession and slower recovery than anticipated even 
two months ago.  Declining government revenues and an automatic 
spike in social outlays will drive the government budget deficit 
over 100 billion euros or 5.5% of GDP in 2009, twice the respective 
2007 levels.  END SUMMARY. 
 
¶2. (U) GDP:  Having registered respectable 0.4% growth (annualized) 
in the third quarter 2008, the French economy contracted 4.7% in the 
fourth quarter, bringing annual GDP growth to 0.7%.  Minister of 
Economy Christine Lagarde revised her projection of GDP growth for 
2009 to a 1.0%-1.5% contraction from a January projection of 
0.2%-0.5%.  Her latest figure remains more optimistic than most 
private sector economists, the IMF (-1.9%) or the European 
Commission (-1.8%).  In early March, an Economics Ministry official 
said that growth should turn positive in 2010 "above 1%". 
 
¶3. (U) Consumption:  Household consumption is one of the few bright 
spots in the French economy, holding strong at 2% growth 
(annualized) in fourth quarter 2008, averaging 1.3% for the year. 
Partial figures for household consumption indicate that consumption 
of manufactured goods rose in January, but this was partly driven by 
higher sales of consumer electronics and appliances (3%) and textile 
products (4.7%) stimulated by the semi-annual sales in January.  A 
jump in January unemployment is likely to presage a fall in consumer 
spending (see reftel on lack of use of consumer credit in France and 
close link between wage income and consumption.) 
 
¶4. (U)Credit:  As of January, growth of credit by financial 
institutions in France was at 7.9%, compared with January 2008.  In 
early March testimony to the Senate, Bank of France Governor Noyer 
confirmed that all the six major banking groups in France had 
increased credit by at least 5%-6%, which he predicted would 
facilitate recovery, "even if demand for residential loans has 
fallen sharply."  At the same time, he said the rise in average 
credit risk will be reflected in rates charged. 
 
¶5. (U) Trade:  The foreign trade deficit increased to 55 billion 
euros in 2008, from 40.6 billion in 2007, with exports rising 2.1% 
(including a 4.8% drop in exports to the U.S.) while imports rose 
5.3%.  Automobile exports were particularly hard hit (minus 12.6%) 
but aeronautics exports were dynamic, partly "recycling" oil 
receipts in the Middle East and Russia.  Trade Minister Idrac has 
pointed out that, excluding energy and automobiles, the foreign 
trade deficit decreased 3 billion euros compared with 2007.  In 
November, the GOF forecast a slightly lower deficit (42.3 billion 
euros) for 2009, in part thanks to lower energy prices.  It may 
update its figures in its revised budget due to be presented March 
¶4. 
 
¶6. (U) Inflation:  Inflation peaked at 3.6% in June 2008 but ended 
the year averaging 2.8%.  With the January inflation rate 
(annualized and seasonally adjusted) at minus 0.4%, the latest 
government forecast is for 0.4% in 2009 and "above 1%" in 2010. 
 
¶7. (U) Public Spending:  In early March, the Budget Ministry 
forecast a government deficit of 104 billion euros or 5.6% of GDP in 
2009, twice its initial September 2008 projection and well above 
both the late December forecast of 70 billion euro and late 
January's 86.5 billion.  The Cour des Comptes (France's GAO 
equivalent) projects that the government budget deficit may not come 
down to Maastricht limit of 3% of GDP by 2012, and public debt could 
surpass 83% of GDP by 2012. 
 
¶8. (U) Employment:  Unemployment in metropolitan France is currently 
near 8%, up from 7.3% in early 2008.  In January, over 90,000 newly 
jobless people registered for unemployment out of a workforce of 28 
million, the largest single month increase since 1991.  Private 
sector non-agricultural employment ended a five-year growth streak, 
peaking at 16.1 million jobs in mid 2008 before falling back to 15.9 
million at year end.  In January, the GOF projected creation of some 
 
PARIS 00000315  002 OF 002 
 
 
50,000 jobs in 2009.  As of March 3, the Ministry of Economy 
anticipates a net loss of over 300,000 jobs in 2009 and additional 
net job losses in 2010.  The head of France's unemployment service, 
which publishes unemployment forecasts, said in a press interview 
March 1 that it is "difficult" at this point to predict 2009 
unemployment rates, indicating that the 300,000 job loss figure may 
already be out of date. 
 
PEKALA