France heading for recession

France will head into recession by early next year as rising unemployment and the fallout of the financial crisis prove too much for the eurozone’s second largest economy, the national statistics agency predicted today.

France will head into recession by early next year as rising unemployment and the fallout of the financial crisis prove too much for the eurozone’s second largest economy, the national statistics agency predicted today.

In its twice-yearly economic outlook report, statistics agency Insee forecast the French economy will shrink by a worse-than-expected 0.8% in the fourth quarter, and by another 0.4% in the first quarter of 2009 – two consecutive quarters of economic decline being a common definition of recession.

The fourth quarter forecast is much worse than Insee’s October estimate of only a 0.1% drop in gross domestic product. For all of 2008, French economic growth will slow to 0.8%, down from 2.1% last year, Insee said.

Earlier this week, French credit insurer Euler Hermes forecast a decline in French GDP of 0.5% in 2009 and said consumer spending, the main driver of the French economy, should begin increasing again slowly, but only from the middle of next year.

France narrowly avoided falling into recession in the third quarter, posting 0.1% growth. But several of its European neighbours have already booked two quarters of negative growth – and as a group, the 15 nations that share the euro have been in a recession since the second quarter.

French exports are suffering due to the economic slowdown in its trading partners, Insee said. It forecast exports to fall in the fourth quarter of this year and the first half of 2009.

Meanwhile, unemployment in France is expected to rise to 8% in the second quarter of next year, up from 7.7% in the third quarter of 2008, Insee said.

Job losses in the non-agricultural private sector will reach 150,000 in the second half of 2008 and increase to 210,000 in the first half of next year, Insee said.

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