French growth outlook dims as labour reforms stall

Plan to cap severance for dismissed workers protested by unions

PARIS (Reuters) —  French economic growth this year will fall short of the 1.5 per cent economists say is the minimum needed to lower persistently high unemployment, the country's central bank governor said on Tuesday.

This spells trouble for President Francois Hollande, who has staked his bid for re-election in 2017 on a promise to reduce joblessness, which remains stuck above 10 per cent.

Bank of France Governor Francois Villeroy de Galhau's prediction comes a day after Hollande's government was forced to water down some of the pro-business labour reforms it hoped would encourage employers to hire staff.

"We (the ECB) revised growth down to 1.4 per cent for the whole of the euro zone, and France will be a bit below that," Villeroy said on France Inter radio. Villeroy also sits on the European Central Bank's governing council.

Economists agree that given the large number of young people entering the job market, at least 1.5 per cent growth is required to nibble away at the jobless total.

The government has been sticking to a forecast of 1.5 per cent for this year and has focused on a set of changes to its employment laws in the hope they will stimulate hiring and economic activity.

However, faced with street protests, union opposition and a rebellion on the left of the ruling Socialist Party, Prime Minister Manuel Valls on Monday dropped plans to impose a cap on severance pay for dismissed workers, along with other measures business leaders had wanted.

Opponents of the proposed law in its previous form said it would only erode workers' rights and was a charter to sack people. A revised version of the law will now go before parliament in the coming months.

A Feb. 29 Harris Interactive opinion poll put voter confidence in Hollande at just 17 per cent, the lowest since he was elected in 2012.

In a television interview on Tuesday, Valls was asked whether he backed Hollande as a presidential candidate.

"Obviously, Francois Hollande is the legitimate candidate as president," he told BFM TV. "But... the person who will make that decision is the president himself.... It's too early to talk about it, but I believe the President of the Republic is a legitimate candidate." 

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