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Confusion over French recession

The French Central Bank has repeated its estimate that France fell into a mild recession at the end of 2012 and predicted that the nation’s economy contracted by 0.1% in the fourth quarter, contradicting the country’s statistics agency.

There is some confusion over whether the banks estimation is correct as data from the country’s national statistic office suggests that in fact France has just avoided recession by showing marginal intermittent growth. If added together the two sets of data suggest that the country-Europe’s second largest economy- is edging just above recession.

The technical definition of recession is two quarters running of contraction of output in a quarter from output in the previous quarter.
Growth is virtually non-existent in the French economy as it has posted stagnation for the past few quarters. Unemployment is high, and tax hikes are set to be imposed to curb the public deficit.

Since coming to power, the socialist government of Francois Hollande has switched the direction of its economic policy in an effort to raise the competitiveness of the nations industry and to increase the amount of national exports.

The disagreement over the figures between the bank and stats agency is sure to lead to confusion over the true state of the French economy. Uncertainty is never good for the currency markets and investors often opt for safer options.

The national statistics institute (INSEE) contradicts the French Bank by saying that they believe the economy in fact, grew by 0.1% in the third quarter, believing that that fractional growth has prevented France from technically entering recession. The INSEE reported on Thursday that French industrial output had rallied by 0.5pc in November from the level in October when it had contracted by 0.6pc on a revised basis from output in September. It had estimated initially that in October, industrial output had shrunk by more, by 0.7pc.

Unless both the Bank and INSEE can agree on the actual facts then the markets will continue to be unsure over the actual health of France. It is an uncertainty that the Eurozone really doesn’t need.

The Pound to Euro exchange rate is currently trading at 1.2249

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