French Economy Slows Ahead of EU Constitutional Treaty Vote

[onedomino]

The French EU Constitutional referendum takes place eight days from now. The "non" vote has a very slight 3 point lead in the polls; probably within the margin of error.

France Slows as EU Vote Nears

http://www.bloomberg.com/apps/news?pid=10000087&sid=aUzdUQR7OenM&refer=top_world_news#

May 20 (Bloomberg) -- French economic growth slowed more than expected in the first quarter, stoking opposition to President Jacques Chirac and setting his back efforts to win support for the European Union constitution in a May 29 referendum.

Gross domestic product in Europe's third-largest economy grew 0.2 percent from the October-December period, when it expanded a revised 0.7 percent, said Insee, the Paris-based government statistics office. Economists surveyed by Bloomberg expected a 0.5 percent gain, the median of 26 forecasts showed.

"Opponents of the constitution will be at ease to ask: what's the plan for growth?'' said Nicolas Sobczak, an economist at Goldman Sachs Group Inc. in Paris, who said he's cutting his 2005 growth forecast to as low as 1.4 percent from 1.7 percent. The GDP figure will embolden critics to step up attacks on EU budget policies and the European Central Bank for its refusal to consider interest rate cuts, he said.

France, which last year contributed the most to expansion among the 12 nations sharing the euro, is adding to the region's deteriorating outlook. The slowdown and a 10.2 percent unemployment rate in France are fueling dissent against the EU treaty, which requires unanimity among the 25-nation bloc.

"Last year, France was the domestic demand powerhouse of he euro zone,'' said Ken Wattret, an economist at BNP Paribas SA in London, which forecast 0.4 percent growth. "These figures suggest that's coming to an end.''

Euro Declines

Unlike the U.S., European statistics offices don't provide annualized figures. Maryse Pogodzinski, a Paris-based economist at JPMorgan Chase & Co., estimated first-quarter growth was an annualized 0.8 percent, compared with 3.1 percent in the U.S.

The euro dropped to a seven-month low against the dollar after opinion polls in France and the Netherlands showed voters are poised to reject the constitution. The currency dropped 0.7 percent to $1.2552 at 4:07 p.m. in Paris.

Opponents of the EU constitution have singled out the European Central Bank for criticism, saying it should seek to boost growth and help the euro to weaken to stoke export demand. The ECB has rejected calls from politicians including Italian Prime Minister Silvio Berlusconi to cut its benchmark interest rate below 2 percent. (Italy is not in control of its own economy. Berlusconi is reduced to ineffective jawboning of the European Central Bank.)

"We want a euro policy which is in the interests of Europe,'' said Laurent Fabius, the Socialist Party's deputy leader who opposes the treaty. "Not everyone supports the statute of the ECB. There is a disconnect between the social aspects of the treaty and the social system in France.'' (It will be ironic, to say the least, if the left, i.e., the French Socialists, sink the EU Constitutional Treaty.)

Plunging Popularity

French growth slowed to 1.7 percent in the first quarter from the year-ago period, the first time it dipped below 2 percent since the fourth quarter of 2003, as higher energy costs curbed exports, hiring, consumer spending, and industrial output. Growth in the fourth quarter of 2004 was revised down from 0.9 percent.

Chirac's popularity plunged to the lowest in eight years, and constitution opponents increased their lead, according to a survey released today by polling company BVA.

His approval rating fell 9 points to 39 percent this month, according to a survey of 1,014 people. No margin of error was given. That's the lowest approval rating since April 1997. Prime Minister Jean-Pierre Raffarin's fell to 21 percent.

Opposition to the EU treaty rose 1 point to 53 percent, a separate BVA survey of 963 people showed, the fifth this week to show supporters in the minority.

EU Charter

The EU constitution, intended to streamline decision-making following the union's expansion to 25 members from 15 last year, would create a permanent president and foreign minister and increase the role of the European Parliament. It also includes a human-rights charter.

France's slowdown may force the European Union to lower its estimate of 0.5 percent first-quarter growth, though that won't be known for sure until Spain reports GDP figures on May 25 (That should be interesting; foreign investment in Spain has dried up since the Socialists took over when Spain ran scared from the 311 terrorists), an EU official said today.

Bank of America Corp., JPMorgan, and Ixis, the investment- banking unit of French lender Caisses d'Epargne, joined Goldman in cutting 2005 their growth estimates for France today after the lower-than-expected pace of expansion in the first quarter.

Italy fell into recession in the first quarter, domestic demand in Germany declined, and the European Commission cut its second-quarter growth forecast for the euro region.

U.K. Slowdown

The commission pared its 2005 growth forecast for the euro region to 1.6 percent from 2 percent on April 4 and said there are risks to the new estimate. The commission also predicted U.S. expansion of 3.6 percent this year, making this the 13th year in the past 14 euro region growth will trail the U.S.

Evidence is mounting that growth in the U.K., which outpaced the euro region every quarter since the start of 2001, is also slowing. Credit-card borrowing dropped for the first time in more than a decade in April and mortgage lending grew by the least since February 2002, the British Bankers' Association said today.

"Unfortunately, things aren't very dynamic in Europe or in France,'' LVMH Moet Hennessy Louis Vuitton SA Chief Executive Bernard Arnault told shareholders at a meeting in Paris on May 12.

French consumer spending, which accounts for 54 percent of French GDP, rose 0.7 percent in the first quarter from the fourth, when it increased 1.1 percent, Insee said today.

Part of the increase in spending was on imported goods such as flat-screen televisions and cars. Exports fell 0.1 percent while imports rose 0.6 percent. As a result of slowing growth, manufacturers pared inventories. Inventory fluctuations cut 0.1 point from growth.

Net trade shaved 0.2 point off GDP growth in the first quarter. Government spending fell 0.5 percent, the first drop since fourth quarter 2001. Corporate investment climbed 1.6 percent in the first quarter, after gaining 1.9 percent in the previous three months.

 

[NATO AIR]

now damnit, get out there and vote no!