20 August 2003, 11:08  French Q2 GDP shrank 0.3%

PARIS, Aug 20 - The French economy contracted by 0.3 percent in the second quarter of this year as exports, consumer spending and investment all fell, national statistics office INSEE said on Wednesday. INSEE also revised down its first-quarter reading for gross domestic product (GDP) to show an expansion of 0.2 percent compared to an expansion of 0.3 percent previously reported.
The quarter-on-quarter contraction in second quarter GDP showed a weaker performance than expected. Economists polled by had given a mid-range forecast for GDP to be flat in the second quarter. The contraction was driven by a 0.6 percent fall in exports, a 0.2 percent drop in consumer spending, and a 0.2 percent fall in investment. The dip in GDP came after narrow contractions in Germany and Italy in the second quarter, which saw those two countries tip into technical recession -- commonly defined as two consecutive quarters of contraction. France's narrow first-quarter expansion meant it avoided falling into the clutches of recession in the first half. However, the weak second-quarter performance spells trouble for the centre-right government, which desperately needs a pick-up in growth to generate tax revenues as it struggles to rein in its public sector deficit and fund tax cuts.
Prime Minister Jean-Pierre Raffarin said last month he expected the economy to grow 0.1 percent in the second quarter, with a pick-up to 0.4 percent in the third. For the full year, Raffarin has forecast growth in a range of 0.8-1.5 percent. Wednesday's GDP data followed mixed recent data from France. Figures last week showed industrial production registered its sharpest rise in almost two years in June. However, the jump was fuelled largely by a rise in energy output as consumers snapped up electric fans to cool off in searing heat. Data earlier this month showed consumer morale held steady at a low level in July as households worries about their finances amid rising unemployment. The headline jobless rate hit 9.5 percent in June. Companies have cut jobs as they seek to rebuild their shattered profit margins. The task has been complicated by a strong euro, which makes French exports more expensive outside the single currency zone and has weighed on already weak demand.
Electrical equipment maker Schneider said recently it expected its operating margins to improve in the second half of 2003 as it cut costs, trimmed jobs and shifted some production from the euro zone to cheaper high-growth markets.//

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