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France to fall into recession this year: IMF

The IMF forecast on Tuesday that France, the eurozone's second-largest economy, will fall into recession this year with the economy contracting by 0.1 percent.

Published: 16 April 2013 15:16 CEST

France to fall into recession this year: IMF

File photo: Joel Saget/AFP

In its latest revisions, the International Monetary Fund dropped its previous forecast of 0.3 percent growth this year, but still expects the French economy to rebound by 0.9 percent in 2014.

France's growth is forecast to be negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and low confidence," the IMF's chief economist Olivier Blanchard said in the foreword to its latest World Economic Outlook report.

The IMF's latest forecasts are more pessimistic than those the French government will sign off on Wednesday as part of its plan to get its public deficit back under the EU limit of 3.0 percent of output by 2014.

In line with the European Commission, the French government will forecast 0.1 percent growth this year and a rebound of 1.2 percent in 2014.

The slow growth rate means that France has to make more of an adjustment in terms of increased taxes and spending cuts to get the deficit down, which in turn could slow growth further.

The IMF's Blanchard noted that in conjunction with Germany posting growth of less than one percent this year, the recession in France "may call into question the ability of the (eurozone) core to help the periphery, if and when needed."

The IMF expects the French unemployment rate to continue rising steadily, from 10.2 percent in 2012, to 11.2 percent this year and 11.6 percent in 2014.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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