FRANCE IS OFFICIALLY IN RECESSION

France entered a shallow recession in the first three months of the year as the economy contracted by 0.2% because of weak exports, investment and household spending, preliminary data from the INSEE statistics agency are showing.

French growth has faltered as raging unemployment undermines the confidence of both consumers and businesses, which are struggling to cope with belt-tightening. INSEE say investments contracted 0.9% in the first quarter, with business investment down 0.8%, while exports contracted for the second quarter in a row, shrinking by 0.5%. Household consumption dropped by 0.1 %, contracting for the first time since the second quarter of last year despite higher spending on energy due to a particular cold winter.

According to French economists the return to recession is the concrete demonstration of the known impact of austerity measures on the economic activity. Contrary to what the French government says, France is conducting a pure austerity policy with a large increase in taxes. This return to recession is symbolically important because it comes at a time when countries in Europe's periphery are showing signs even if they remain weak that their economic situation is improving.

France as the second economic power on the continent is an important commercial partner for its closest neighbours. The recession in France might reduce French imports which can affect Spain, Belgium, Italy and Germany. Germany may have to look even more to Eastern European countries and Russia in order to stimulate its exports as well as compensate to decrease in French imports by an increase of imports from other countries, outside the eurozone.

The fall in purchasing power means that consumption which represents 60% of the French GDP is going to get lower in France.

There is no current signal that the French economic situation is going to change in the near term, therefore no reason to believe that the unemployment rate in France is going to be reversed. One thing is certain: France needs to change its economic priorities for next year.