France teeters on brink of recovery

Is the French economy about to rise from its sick-bed and walk? Upon the answer depends the outcome of several of the great political issues of the next 18 months.

The launch date of the European single currency; efforts to check the advance of the ultra-right Front National in France; the chances of Alain Juppe's centre-right government surviving the parliamentary elections next March. They all turn, directly or indirectly, on the performance of the French economy.

A week or so ago, it seemed that France - despite the persistent, almost psychotic gloom of public opinion - had every reason to look forward to 1997.

Exports were breaking all records; the franc had fallen steadily to a much more tolerable position against the dollar; there were the first signs of a fall in unemployment in December.

Mr Juppe's government was said to be ready to scrap its prediction of modest 2.3 per cent growth this year (the very minimum needed to meet the targets for the single currency) and bet on a modestly higher figure.

A series of disappointing numbers at the end of last week cast a shadow over this sunny outlook.

The total of French unemployed rose marginally in January, remaining stuck in percentage terms at a politically disastrous 12.7 per cent (almost double Britain's).

Growth stumbled in the last quarter of last year to produce an anaemic final performance for 1996: 1.3 per cent, compared with an estimated 2.4 per cent in Britain.

The one seemingly unclouded beacon of hope is the country's extraordinary trade performance. Even with an unfavourable dollar-franc exchange rate for much of 1996, France had a record trade surplus of pounds 13.5bn last year. With luxury goods and quality farm produce, especially cheese, leading the way, there is every reason to expect a continuing trade boom in 1997.

Predictions of a solid French recovery depend on it. The small print of last week's figures showed that French consumers were still not spending (they remain depressed by 1995 tax rises and unemployment) and that French industry was still not investing generously in itself.

Hopes of faster growth this year rely on the trade surplus reversing this vicious circle and boosting consumer demand for French goods in France.

A sharp rise in business confidence this month suggests this may be happening. A majority of French economic analysts believe the underlying trends suggest a solid recovery. Most French banks are said to be ready to revise upwards their growth predictions for 1997.

The main threat may be the almost complete absence of Le Feel-Good Factor. The former French prime minister, Edouard Balladur, in a mainly optimistic essay in this week's Economist, says the stubbornly high levels of unemployment are the main source of gloom.