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Hollande's headache worsens as France slips into recession

16 may 2013, 17:14
President Francois Hollande's nagging headache to reboot the French economy has turned into a migraine as the economy slipped into its second recession in four years, fuelling speculation of an impending cabinet reshuffle, AFP reports.

Having just marked his first year as French president, Hollande's ambition to reverse the trend of soaring unemployment is now deemed an impossible task by many economists who say the government's efforts to create more jobs will at best limit the damage.

The national statistics agency, INSEE, said Wednesday the eurozone's second-largest economy fell into recession -- two consecutive quarters of contraction -- in the first three months of the year with the economy shrinking by 0.2 percent, just as the eurozone posted its sixth straight quarter of economic contraction.

The French opposition was quick to pounce on the news, with ex-prime minister Francois Fillon of the right-wing UMP blaming the recession on Socialist government inaction since Hollande took power.

"Francois Hollande's government stopped all reforms, cancelled them, and did not replace them with any real initiative for competitiveness," Fillon told news website lopinion.fr.

But Finance Minister Pierre Moscovici insisted that the recession was "not a surprise" and was "largely due to the environment in the eurozone".

He also maintained the government's promise of stemming the rise in unemployment by the end of the year.

The government's woes come after Hollande last week for the first time hinted at a reshuffle of ministers and with speculation intensifying after Foreign Minister Laurent Fabius on Tuesday said the finance ministry lacked a proper "boss" to coordinate economic policy.

In March, the number of unemployed French jobseekers reached a record-high, hitting 3.224 million.

"Reversing the curve by the end of the year is a mission impossible," said Mathieu Plane, an economist at the French Economic Observatory at the Sciences Po university.

Plane said that although the government might be able to produce one month of good news by applying a raft of measures to boost employment, "an exit from the crisis is not in sight".

"The only way to limit the damage is to offer part-time unemployment", referring to policies that allow employers to retain staff by reducing their hours.

The March jobless data was a real set-back for Hollande who in September gave himself one year to reverse the curve. In late December, he moved the goalposts, saying the trend would be bucked by the end of this year.

"Clearly when Francois Hollande said 'the trend will be reversed at the end of the year' he had in mind that activity could resume before the end of the year, something which seems complicated. In no region in the world are we seeing an activity pick-up, and Europe isn't very robust," said Philippe Waechter, an economist at Natixis investment bank.

To curb unemployment, economists estimate that France needs annual growth of around 1.5 percent.

But on Wednesday, the president told a press conference in Brussels: "It is likely that there will be zero growth in 2013".

He nonetheless added: "It is my view that we are past the worst."

Earlier in the day, Moscovici had said in Paris that a tiny economic expansion of 0.1 percent was still expected this year.

Hollande's government still expects a slight decline in jobless figures in the last quarter owing in large part to a gradual recovery of global activity.

Hollande met European Commission head Jose Manuel Barroso and other commissioners in Brussels for talks on boosting eurozone growth and France's efforts to reach EU deficit limits of less than three percent of Gross Domestic Product (GDP).

The EU has signalled it will likely give France an extra two years, to 2015, to bring its deficit back under 3.0 percent of GDP, although Paris will be be obliged to undertake reforms in return.

On Thursday, Hollande is to give a wide-ranging press conference when he is expected to sum up his first year as president and respond to questions about a cabinet reshuffle.

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