27 August 2003, 17:46  French jobless seen rising as recovery falters

PARIS, Aug 27 - French unemployment is set to rise to 9.6 percent when figures are published on Friday, as growth falters and companies embark on a fresh round of cost cuts, economists said on Wednesday. An industry investment survey, also due on Friday, is expected to underscore the weakness in the euro zone's second largest economy as it teeters on the brink of a recession which has already snared neighbouring Germany and Italy.
A poll of 17 economists gave a mid-range forecast of 9.6 percent for the July unemployment rate -- a rise from 9.5 percent in June, which was a three-year high. "It seems that restructuring is gaining momentum rather than easing. The trend is bad," said Deutsche Bank economist David Naude. "It may very well be the casethat France is going to experience a late-cycle recession patch before picking up." The French economy shrank by 0.3 percent in the second quarter. Negative growth in the third quarter would put it in recession -- defined as two straight quarters of contraction. The injection of a fresh round of school leavers into the jobs market in July is likely to have increased the supply of labour at a time when demand was weak, economists said.
Companies are seeking to cut costs to repair profit margins, with some of France's top corporate names leading the way. Engineering giant Alstom plans to chop over 1,000 posts in France, while semiconductor maker STMicroelectronics plans to close its factory in the French city of Rennes later this year, eliminating nearly 500 permanent jobs. "The unemployment rate will continue to rise in 2004 because growth is insufficient. There needs to be a two percent (annual) rise in GDP for the unemployment rate to remain stable," said Emmanuel Ferry, economist at brokerage Exane. The International Monetary Fund (IMF) has cut its growth forecast for France to 0.8 percent for 2003 from 1.2 percent and sees 1.9 percent growth in 2004, according to a draft IMF report obtained by . "Our businesses are severely handicapped by all the taxes and social charges that put us in an unfavourable position," Yvon Jacob, head of the federation of mechanical industries, said in an interview with the daily La Tribune on Tuesday.
Jacob urged the government to cut taxes. But with Brussels pressing France to rein in its bulging budget deficit, Prime Minister Jean-Pierre Raffarin has little room to cut taxes to stimulate growth. Friday's investment survey is set to highlight business nervousness, economists said. They predicted a bleaker outlook than in the last survey, published in May, which showed industry chiefs expected investment to rise six percent this year. "I fear there is a risk that we will get a bad surprise, and that rather than six percent, we'll be between zero and two percent," said Marc Touati, chief economist at Natexis Banques Populaires.//

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