An Economic Recovery May Save Hollande’s Presidency

François Hollande. Photo: Flickr.com/jmayrault

François Hollande.
Photo: Flickr.com/jmayrault

France’s recession is officially over, as newly released economic data showed a surprising return to growth in the second quarter.

The national economic statistics agency, INSEE, reported that the French economy grew by 0.5% between April and June, its best showing in the last two years. The unexpected boost was attributed in large part to a jump in consumer spending.

INSEE predicts that France will post achieve overall growth of 0.1% for the 2013 fiscal year.

This return to growth is welcome news for President François Hollande, whose approval ratings steadily slid downwards as the French economy sputtered out. This May, with unemployment climbing, Hollande found himself the most unpopular president in the history of the Fifth Republic.

In a speech last month, Hollande bet his presidential legacy on his ability to pull France out of recession, saying “I will be judged on it.”

Both at home and abroad, the consensus was that France was in an economic morass. While Hollande insisted that his plan to save the economy was starting to bear fruit, Minister of Finance Pierre Moscovici, a member of Hollande’s Parti Socialiste, was careful to avoid making any firm promises.

A week before INSEE published its findings, Moscovici revised his economic forecast downwards, predicting growth of no more than 0.1% by year’s end and warning that economy might continue to shrink. While Moscovici pointedly did not contradict Hollande’s promise of recovery, it was a striking fall from last December’s prediction of 0.8% growth.

Political opponents pounced on the apparent gap between Hollande and Moscovici. The center-right newspaper Le Figaro called Hollande’s July optimism “a disaster in terms of timing,” and called Moscovici an “equivocator.” Minister of Labor Éric Woerth, from the opposition Union pour Un Mouvement Populaire, quipped that “the economic minister is suffering from a bit of sunburn.”

If INSEE is correct, it seems that 0.1% overall growth is exactly what France will get this year. While Hollande would have preferred growth along the lines of Moscovici’s overly bullish initial forecast, INSEE’s new report is undeniably good news. Indeed, Moscovici’s more modest new predition was far too sunny for many analysts.

The International Monetary Fund predicted earlier this month that France’s economy would shrink by 0.1% by the end of 2013 and would only return to growth in 2014. While this was an improvement over the IMF’s July prediction, which forecast a contraction of 0.2%, it was far from the good news that the Hollande administration needed.

Almost all experts were bearish on France. Before this week’s upward revision, INSEE had predicted the economy would shrink by 0.1%, a figure Moscovici described as a worst-case scenario. In May, Standard & Poor’s warned France to curb its spending or else risk a downgrade of its AA+ credit rating. It also predicted that France would shrink by 0.2% by the end of 2013.

Despite the doomsayers, there had been recent signs that France might be on the mend.

In its August report, the IMF, while predicting a continued recession, admitted that France had made clear progress in reducing its deficit.

Late last month, INSEE reported a rise in the French industry morale indicator, from 93 to 95 – the fourth improvement in as many months. This announcement prompted Moscovici to firmly declare the recession was over.

Last week, financial analysts at Markit reported that French manufacturing in July shrunk by its slowest rate in 17 months, outperforming almost all predictions. Markit credited manufacturing’s improvement to rising export orders, which had compensated for weak domestic demand.

Now it seems Markit may have been too bearish on domestic consumption. According to INSEE’s findings, household spending climbed by 0.4% last quarter. Prominent in that rise was higher energy spending due to an unseasonably cool spring and the first increase in automobile purchases since 2011.

Across the Eurozone, it has been a week of good news. Germany, Europe’s largest economy, posted 0.7% growth. Portugal, one of the countries hit hardest by the Eurozone crisis, surprisingly led the pack with quarterly growth of 1.1%. Ireland, which was also financially crippled by the banking crisis, saw its exports rise by 2.3%.

Across the European Union, aggregate quarterly growth hit 0.3%, beating the official forecast of 0.2%.

But while many in the media have declared an end to the EU’s worst economic crisis since the 1970s, experts and officials are warning against premature celebrations.

Italy, Spain, and Greece still are struggling, although reports indicate that the rate of recession in those countries may have slowed down. Spain saw a drop in unemployment, but it is still at a catastrophically high 25%. The Netherlands also stayed in a recession.

French Prime Minister Jean-Marc Ayrault welcomed the recovery but promised that the government was taking nothing for granted.

“We must not settle for this, we need to pursue and widen the battle for growth, the battle for jobs, the battle for innovation,” he told reporters, adding, “This shows that we’re on the right path.”

The “battle for jobs” will be especially critical, as last quarter’s growth was not enough to stop the economy from losing 27,800 commercial jobs. France is still struggling a 15-year high in unemployment, and even Hollande, who has stayed as publicly optimistic as possible, has admitted that unemployment will not be reversed this year.

Investment also remains a weak spot, having fallen in all 15 months of Hollande’s presidency.

European Commissioner for Economic Affairs Olli Rehn summed up the cautious optimism felt across the EU in a written statement.

“There is no room for any complacency. Self-congratulatory statements suggesting the crisis is over are not for today.”

Trackbacks

  1. […] France’s recession is over, officially at least, as newly released economic data showed a surprising return to growth in the second quarter. The national economic statistics agency, INSEE, reported that the French economy grew by 0.5% between April and June, its best showing in the last two years. The unexpected boost was attributed in large part to a jump in consumer spending. INSEE predicts that France will achieve overall growth of 0.1% for the 2013 fiscal year. This return to growth is… […]

  2. […] a burden on households, many of which are still feeling the pinch of the recent recession. Although economists officially declared the recession over earlier this month, unemployment is still high, and consumer spending remains […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: