24 June 2004, 12:10  French govt hails growth, vows to control spending

France's embattled government hailed signs of accelerating growth on Thursday as a rare piece of good news which vindicated its policies of controlling public spending, boosting growth and creating jobs. A government spokesman said key economic policies would remain unchanged following an announcement by state statistics office INSEE that it was raising its 2004 growth forecast to 2.3 percent from 1.7 percent. "This is the confirmation that our economic policy carried out on the initiative of (Prime Minister) Jean-Pierre Raffarin for the past two years was the only one possible," spokesman Jean Francois Cope told France 2 television. "The policy we have adopted is a policy which anyway aims at stimulating growth," he said. "The work of controlling public spending must continue." He added: "Good news does not come so often." The government, routed in regional and European elections in the past three months, is keen to win back credit with voters angry over cost-cutting and job losses and to avoid splits in its own ranks ahead of national elections in national 2007. Raffarin says the economy is now starting to create jobs again, but it could take some time for the change to be felt.
SURGE IN INVESTMENT
In a quarterly report, INSEE predicted a surge in investment but no quick fix to high unemployment levels that have landed the government in trouble. INSEE predicted a 3.1 percent rise in investment after near stagnation in 2003, a 2.1 percent increase in consumer spending, and a drop in inflation as long as world oil prices ease a little from their peaks. The report highlighted that French growth, which spurted an unexpectedly strong 0.8 percent in the first three months of the year, received more of a lift from consumer spending than Germany, where the economy was more reliant on exports. "Investment will continue to advance," it said of France. "But consumption will be slowed in the third quarter by the lingering impact of lower first-quarter revenue levels and the damage that surging oil prices have done to spending power, before picking up again in the fourth quarter." Household expenditure is expected to increase by 2.1 percent in 2004 as a whole, compared to 1.7 and 1.8 respectively in 2003 and 2002, two years when the French economy suffered badly like the rest of Europe from a slump across the industrialised world. Contrary to warnings by the European Central Bank, INSEE said the 'second round effects' of high oil prices in terms of rising production costs and wage demands was limited.
Inflation had risen in France, mostly because of oil and commodity prices, but the worry should not be exaggerated, INSEE said, predicting a drop in French inflation to 2.6 percent in June from 2.8 in May, and 1.7 percent by year-end. "The biggest unknown in the short term that could have an impact on euro zone growth is oil prices, which have become very sensitive to events in the Middle East," INSEE said. But the limited knock-on effect of energy price inflation on wages and production cost "is not likely to trigger an abrupt tightening of monetary policy (interest rate rises) either in the United States or Europe." INSEE's report said unemployment risked rising in the next few months as more people signed up at job search agencies at the end of the school year before an increase in job creation began to have any impact on the jobless rate. It predicted an unemployment rate of 9.8 percent at the end of the year, which is no different to the current rate and bad news for President Jacques Chirac after announcing that jobs would be the government's top priority in 2004.///

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