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French economy faces gloomy future in 2008

The French economy, buffeted by the rising euro against US dollar and high oil prices, coupled with problems within the economic system, is expected to face a tough year in 2008. Many international organizations and economists believe that the French economy is unlikely to register marked growth next year.

France’s GDP rose by 0.6%, 0.3% and 0.7% in the first three quarters of 2007. With an inflation rate of 2.0%, and the prospects for the industrial sector remaining bleak, French growth is estimated to stand below 2.0% this year, lower than the government’s forecast of 2.0% to 2.5%, according to the statistics body INSEE. In 2006, the country’s trade deficit reached a record-high of €29 billion (about $42 billion). In the 12 months from November last year to October this year, France’s trade deficit has jumped above €35.2 billion (about $51 billion), expectedly to set another new high in 2007. High taxes and welfare and rigid labor laws in France remain the major barriers to the sound development of its enterprises. High taxes have forced many companies to move their production to other countries and made France less attractive to foreign investors.

Since taking office in May, President Nicolas Sarkozy has tried very hard to initiate economic reforms, but met with strong resistance from various sectors, an indication that his endeavor to revive the country’s economy is not to be plain sailing. Troubled by a strong euro, high oil prices and the risk of global economic slowdown, „the course of reform could naturally be affected,” said the French newspaper Le Figaro in a report. Many international organizations and economists are pessimistic about French economic prospects next year. In the „World Economic Outlook,” the Organization for Economic Cooperation and Development said France’s economic growth rate next year is unlikely to exceed 2%.

Managing Director of the International Monetary Fund Dominique Strauss-Kahn also said that an economic growth of 2.25% for 2008 set by the French government was too optimistic, taking into account the negative impacts of U.S. subprime mortgage crisis and subsequent financial trouble on the economic performance of the United States and other European countries next year. On its road to economic growth, France is confronted with many difficulties, which are hard to overcome within a short year. The reform of its rigid and inefficient economic model has been a key factor to revive the country’s macro-economy.
Despite the strong wish of Sarkozy’s government for a „radical shake up” of the stagnant economy, the government’s reform got to a difficult and shaky start. It seems unrealistic to expect the reform to yield tangible results and revive the French economy anytime soon.

Strong Euro against US dollar has given French enterprises a hard time, undermining their competitiveness. Some French industry giants, such as Airbus and Renault Automobile, have repeatedly complained about the big disadvantage of a strong euro. Shrinking profits force them to consider outsourcing their production, thus further squeezing France’s job market. Lack of flexibility and innovation has also put many French enterprises in an unfavorable position in economic competitions. For instance, France lags behind the US, Japan, Germany and other competitors in innovation capacity in the fields of information and communication technologies. Compared with their counterparts in other Western countries such as the US and Germany, French enterprises have lagged behind in globalization process.

Analysts believe that euro would keep strong for a while, and oil price will remain in the high territory in the foreseeable future. Against this backdrop, analysts believe that the French government’s ongoing reform is unlikely to give the country’s economy boost, and 2008 will probably turn out to be a tough year for the French economy. (people.com.cn)