By Michael Mainville (AFP) – Aug 14, 2013
PARIS — France has emerged from a shallow recession after posting stronger-than-expected second quarter growth, data showed Wednesday, in a rare piece of good news for President Francois Hollande's embattled Socialist government.
Deeply unpopular and struggling with rising unemployment, Hollande was ridiculed by some observers last month for saying that France's economic recovery had begun.
But the INSEE national statistics agency said France had indeed posted growth of 0.5 percent in April to June, beating analysts' forecasts, in the economy's best result for two years.
Some analysts voiced caution, noting that the economic bump was due largely to an increase in consumption and that underlying problems persisted, including a drop in investment.
But the news will give Hollande a boost ahead of what is expected to be a tough autumn, as the government pushes difficult reforms aimed at reining in the deficit and making France more competitive.
Prime Minister Jean-Marc Ayrault said the government would not be complacent despite the rebound.
"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. "That's what we're doing already but this shows that we're on the right path."
Budget Minister Bernard Cazeneuve told AFP the data showed that "better days are unquestionably ahead of us".
The surprisingly strong French growth, along with 0.7 percent second-quarter growth in Germany, helped the eurozone climb out of recession as it enjoyed better-than-expected 0.3 percent growth in April-June.
INSEE said the French growth was largely thanks to improved household consumption, which was up 0.4 percent, with increased spending on energy amid a cool spring and the first increase in automobile purchases since 2011.
Industrial output was also up, but investment continued to fall and was down 0.5 percent.
After earlier predicting that the economy would contract by 0.1 percent overall this year, INSEE said it now expects growth of 0.1 percent for 2013, in line with government forecasts.
But there was no sign the slight increase in economic activity was having an immediate impact on employment levels, with other INSEE data showing the loss of 27,800 commercial jobs in the second quarter.
Hollande has promised to reverse the rise in unemployment by the end of the year, after the number of jobseekers in France rose to a record of nearly 3.3 million.
Analysts said the government was still facing tough times ahead.
"This morning's pleasant surprise should not lead us to think that our difficulties are behind us," French economist Gilbert Cette said.
"Prospects are still uncertain and we shouldn't expect the same performance in the third and fourth quarters of 2013," he said.
The government has vowed to tackle a number of tough reforms in the autumn, including a restructuring of France's debt-ridden pension system that has already sparked calls for general strikes.
It will also need to announce new measures to tackle the deficit, as it struggles to bring it under the EU ceiling of three percent of GDP.
Earlier this year the eurozone's second-largest economy was given a two year-reprieve until 2015 to reach the three percent target by the EU.
But analysts say the country may still miss its new target of cutting it to 3.7 percent of GDP this year.
The government has not ruled out increasing taxes to help reduce the deficit, but cuts to public spending are also expected.
In a report this month the International Monetary Fund urged France not to raise taxes and to continue reducing public spending.
It also called on France to reform its labour market, warning that high labour costs were hurting French companies in the increasingly competitive global economy.
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