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Monday, August 11, 2014 2:19 PM

Alarming Failure of French Economy; Expect Serious Tremors in September

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Les Echo discusses the Alarming Failure of French Economy.

GDP for the second quarter will be released Thursday, and it does not look good. Industrial production declined in the second quarter, foreshadowing very low GDP growth. It's a moment of truth for the government. It will need to revise its deficit forecasts.

All major industry sectors experienced a decline in their production. And building continues to dive. Housing starts are at their lowest for fifteen years, a shortfall of 0.4 percent of GDP this year.

Consumer spending has held up, the French having spent an additional 1% between April and June than in the previous three months. This is the only pleasant surprise since the beginning of the year. But it is due to heating costs, which rose in the spring following a mild winter.

Dembik Christopher, an economist at Saxo Bank, says "Economic stagnation in France is a safe bet for 2014."

France is not alone in Europe. The situation is worse in Italy, which has fallen into recession, but that is no consolation to the French executive.

Without growth, the entire budget equation becomes insoluble. Especially as the low inflation kills off the anti-deficit plan. Once known growth in the second quarter, the government will have to revise its forecast for 2014 (1%) and 2015 (1.7%), leading to a greater than 3.8% of GDP deficit in 2014, significantly in excess of the 3% threshold agreement for 2015.

Standoff with the European Commission, and also with Germany, will lead to serious tremors in September.
Mike "Mish" Shedlock

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