World financial crisis

France reports growth as eurozone enters recession

Article published on the 2008-11-14 Latest update 2008-11-14 13:14 TU

The eurozone officially entered recession Friday, as third quarter statistics showed the gross domestic product (GDP) of the 15 countries using the euro currency fell 0.2 per cent in the second and third quarters. The French economy, however, grew by 0.14 per cent in the third quarter, keeping it out of recession and defying expectations.

Graph of French GDP and domestic demand
(Source: INSEE)

“The figure is surprising because everyone expected a negative figure and was preparing to discuss recession, since recession is technically two consecutive negative quarters,” said French Economy Minister Christine Lagarde after the news was announced.

The French national statistics institute, Insee, institute had predicted a fall 0.1 per cent in France’s gross domestic product (GDP), which would have meant France was in recession, after a 0.3 per cent drop in the second quarter.

Such a small rise would usually not be remarkable, but it is in the unstable financial climate, when other European economies are registering negative growth.

The eurozone economy registered negative growth for the second quarter in a row, officially putting it into recession for the first time ever.

Official figures on Thursday showed that Germany sank into recession for the first time in five years. Italy’s economy shrank 0.5 per cent this quarter, after it fell 0.3 per cent in the second quarter.

France managed to stay out of recession because of household spending and a rise in investments by companies, which had collapsed in the previous months.

But this rise does not mean the French economy is doing well.

European car sales dropped 14.5 per cent in October, and France is heavily involved in that sector. Sales of Renault cars dropped 16.9 per cent in October; although the group as a whole dropped by only 14.1 per cent, because its Romanian affiliate, Dacia, registered a 20.2 per cent growth in sales.

The International Monetary Fund warns that France will suffer a recession in 2009, predicting a drop of 0.5 per cent in the GDP for the whole of the eurozone.

News of the eurozone recession raises the stakes ahead of a G20 economic crisis meeting taking place in Washington on Saturday, where leaders of the 20 richest economies will come up with a joint strategy to tackle the global financial crisis.

“We cannot expect a miracle from this summit, which was Europe’s idea, but will rather see the beginning of a process that will create a finished programme in 100 days,” said European Commission chief Jose Manuel Barroso in an interview with the German newspaper Sueddeutsche Zeitung.