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Dec 20, 2013

French recovery too weak to curb unemployment: Report

Unemployment to keep ticking higher despite recovery
    
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PARIS (Reuters) — France is set to eke out economic growth of 0.2 per cent this year, but a year-end rebound will be too weak to get unemployment falling as President Francois Hollande has pledged, the INSEE statistics agency forecast on Thursday.

The government had said it expected the euro zone's second-biggest economy to expand at least 0.1 per cent despite a soft start to the year.

After contracting 0.1 per cent in the third quarter, INSEE forecast that the French economy would grow 0.4 per cent quarter-on-quarter (q/q) in the final three months of the year, boosted by a bounce back in business investment and exports.

However, the improvement would prove short-lived, INSEE said in its latest economic outlook, forecasting that French gross domestic product would grow by only 0.2 per cent q/q in both the first and second quarters of 2014.

Recent economic data have painted a mixed picture of French economic activity, with the purchasing managers' survey pointing to a new downturn while better business sentiment polls have prompted the Bank of France to raise its fourth quarter growth forecast to 0.5 per cent.

The outlook offers scant relief to Hollande as he struggles to live up to a promise to jump-start the economy, in particular by getting unemployment on a downward trend by year-end.

INSEE economist Laurent Clavel told journalists that state-sponsored jobs in the private sector would help employment, but not enough to absorb the growth in the labour force.

As a result the unemployment rate, which stood at 10.9 per cent in the third quarter, would reach 11.0 per cent by mid- 2014, just shy of the record 11.2 per cent reached in 1997.

Despite considerable slack in the economy, INSEE estimated that inflation would rise in the coming months to reach 1.1 per cent in the middle of 2014 compared with 0.7 per cent in November.

It estimated that an increase in valued-added sales tax at the start of 2014 to 20 per cent from 19.6 per cent currently would add 0.2 percentage points to the inflation rate.

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