France has entered a recession, with economic contraction expected in the third and fourth quarters of 2008, the country’s national statistics agency said today.
The Insee statistics agency said it expected the economy to shrink by 0.1% in both the third and fourth quarters. Following on a 0.3% fall in the second quarter, that would bring growth down to 0.9% for 2008.
Insee said its forecasts, which are based on the premise that the current financial crisis does not worsen, also expect unemployment to rise to 7.4% by the end of the year, from 7.2% in the third quarter
The projections have sparked a debate over the definition of recession, which economists generally define as two consecutive quarters of falling gross domestic product.
Government officials have been quick to insist France is experiencing very slow growth but is not in a true recession because growth for the year is still expected to be positive and is close to the government’s projection of 1.0% growth for the year.
French finance minister Christine Lagarde, who has until now rejected suggestions that the country was headed for recession, said “the risk of negative growth this autumn for the second consecutive quarter is now real”.
Lagarde blamed high oil prices, the strength of the euro earlier this year, and the worsening financial crisis for the recession.
The finance minister said the government was “totally mobilised” to protect French consumers’ spending power, and said that the priority should now be on re-establishing confidence on the financial markets, “so that this weak economic conjuncture remains temporary”.
Other European countries are not faring much better.
Forecasts issued by the EU last month pointed to a possible recession for Germany, Spain and Britain – predicting their economies will shrink for two consecutive quarters. The EU predicts that the 15 euro nations will grow 1.3% this year and the entire EU will grow by 1.4%.
Last week Ireland became the first European country to formally declare it was in recession, with the economy shrinking in both the first and second quarters this year.