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Hollande struggles to revive French economy

Update: August, 31/2012 - 09:10

by Thu Hang

 

Health workers take part in a demonstration in Lyon, central eastern France during a national day of protest against the government's austerity package.—AFP/VNA Photo.
The French government is trying to revive its economy after a weak start to this year, underscoring the challenges facing newly elected President Francois Hollande as he seeks to control debt and deficit levels while delivering on a promise to foster growth domestically and in Europe.

Europe's second largest economy recorded zero growth in the second quarter, beating some expectations that it would begin to slide into recession, according to the data showed by the national statistics institute. But the country's central bank has added a further note of pessimism, predicting a slip into recession during the third quarter. In July, the number of French job seekers grew for a 15th consecutive month and registered its sharpest monthly increase in three years, reaching 2.99 million people.

The French economy is showing increasing signs of weakness as the Government forecast for growth of only 1.2 per cent next year may yet have to be revised downward. Most economists now expect growth of between 0.5 and 1 per cent.

Hollande, meanwhile, has vowed to cut the budget deficit next year to within 3 per cent of gross domestic product (GDP) and to balance the budget by the end of his term in 2017. His projections are based on a growth forecast of 0.5 per cent this year and 1.7 per cent next year, but France's national debt is expected to continue to rise before it starts to fall back. There is considerable scepticism as to whether Hollande will be able to meet challenge he has set for himself.

While France is among the world's leading industrial economies, the new data on joblessness has overshadowed economic recovery prospects. Automaker Peugeot Citroen has announced 8,000 job cuts and a plant closure as it struggles with mounting losses.

The Aulnay plant near Paris, which employs more than 3,000 workers, will cease production in 2014 as Peugeot reorganises domestic capacity. Aulnary will become the first French car plant to close in two decades, undercutting Hollande's pledge to revive domestic industry.

"I know how serious these measures are for the people concerned, and for our entire company," Reuters quoted CEO Philippe Varin as saying.

While Hollande has branded Peugeot's plan to cut 8,000 jobs as unacceptable, and has proposed subsidies to promote the production and sales of hybrid vehicles, industry analysts say the auto giant has little option but to proceed with cost cuts after posting a first-half loss of about US$999 million.

A day after Peugeot confirmed plans to slash its workforce, telecommunications equipment maker Alcatel-Lucent said it would cut 5,000 jobs worldwide by the end of next year.

Air France has also proposed to eliminate 5,122 positions while pharmaceuticals group Sanofi acknowledged that a planned reorganisation would lead to unspecified job losses, estimated at up to 2,000 by unions.

Hollande's right-wing opposition accuses him of failing to address the real problems: declining industrial competitiveness and a lack of flexibility in labour markets. They also argue that tax hikes would cause many enterprises to relocate production to other countries. Some also warn that France would be in danger of falling into a debt crisis similar to those in Spain and Italy, with impacts not only on the economy of the EU but globally.

Yet Hollande's plan to balance the budget is based on raising taxes rather than cutting spending. The French parliament in July passed Hollande's revised 2012 budget aimed at meeting his pledge to reduce the budget deficit from 5.2 per cent of GDP last year to 4.5 per cent of GDP this year. — VNS

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