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France's economic growth fell flat in spring

PARIS — The French government was put under further pressure to cut deeper into spending after figures Friday showed that growth in Europe's second-biggest economy ground to a halt in the spring — another sign that the global economy is facing rising recessionary threats.

With the worse-than-expected French growth figures suggesting a possible budget shortfall this year, government ministers may have to find additional savings ahead of a key meeting with President Nicolas Sarkozy on Aug. 24.

The flat growth reported in the second quarter of the year was attributable to a slump in consumer spending and exports, and it came as policymakers scramble to soothe investor concerns that the country could be the next major economy to lose its coveted triple-A credit rating.

A move Friday by stock market regulators in France and elsewhere across Europe to ban short selling — a form of stock market speculation that some are blaming for the turbulent trading in recent days — looked to be having some impact.

But economists stressed that any rebound was very fragile, and some derided the ban as misguided and ineffective.

French bank shares were performing solidly in Paris, with Societe Generale up nearly 5.7 percent and Credit Agricole up over 2 percent at the close of trading Friday. Over the past couple of days, French bank stocks, and Societe Generale in particular, have been hugely volatile amid rumors about their financial health.

Meanwhile, Jean-Pierre Jouyet, the head of the French stock market regulator, the AMF, said on RTL radio that an investigation was opened Friday into the origin of the rumors targeting Societe Generale. The AMF announced plans for the investigation Wednesday after shares in Societe Generale plummeted, closing 14.7 percent lower that day.

The European Union's markets supervisor, the ESMA, announced the short-selling ban late Thursday night after boosting surveillance of stormy markets earlier in the day. In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share.

Regulators in France, Italy, Spain and Belgium are each implementing the ban. The details vary from country to country.

News that French economic growth sputtered to a halt in the second quarter may raise concerns that the European economy is being affected by the debt crisis that has afflicted a number of countries and has fueled the turmoil in the markets.

Separate figures from Eurostat, the EU's statistics office, showing that industrial production across the 17-country eurozone fell by 0.7 percent are likely to add to market concerns over the pace of the economic recovery in Europe.

"As for France itself, Q2's 0.7 percent drop in consumer spending was the sharpest in nearly 15 years, suggesting that the household sector can no longer be relied upon to support the economy," said Jennifer McKeown, an economist at Capital Economics in London.

However, Laurence Boone of Bank of America Merrill Lynch remained "positive on France overall," based on its careful handling of debt in the past.

France's finance minister took to the airwaves again Friday in a bid to put a positive spin on the weak second-quarter numbers.

"It's not a surprise that the second quarter is worse than the first. We anticipated this," Francois Baroin said on French radio station RTL. He said the government is sticking with its deficit reduction targets despite the lower growth.

.Fast facts

Italy approves austerity measures

Italy's government on Friday approved $64.8 billion in emergency austerity measures over two years to balance the budget by 2013 in response to demands by the European Central Bank. The Cabinet approved the package of cuts and new taxes despite fierce resistance from local government officials, who denounced the measures as socially unjust and as damaging to economic growth. The measures include an extraordinary "solidarity" tax for high earners. Anyone with an income over $128,000 a year will be assessed an additional 5 percent tax in each of the next two years. The rate will be 10 percent for incomes over $213,500.

France's economic growth fell flat in spring 08/12/11 [Last modified: Friday, August 12, 2011 9:41pm]
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