French current account deficit widens sharply

PARIS - France’s current account deficit widened to some 4.0 billion euros ($5.06 billion) in July from a 0.8 billion euro deficit in June, data showed on Tuesday, in a sign French exporters were still struggling to compete abroad.

By (Reuters)

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Published: Tue 19 Sep 2006, 6:37 PM

Last updated: Sat 4 Apr 2015, 4:22 PM

The Bank of France said the merchandise trade deficit widened by 1 billion euros to 3.7 billion euros, affected by a decline in exports while imports continued to progress.

“We have bad industrial production figures, a bad foreign exchange (rate), and that (adds up to a) lack of competitiveness. A stronger euro has penalised French companies,” said Alexander Law, chief economist at consulting firm Xerfi in Paris.

“But that does not explain why trade with Germany and the rest of the euro zone has really deteriorated, which shows that there is a real lack of competitiveness in French industry.”

Law noted that in Germany, many small and medium-sized companies were big enough to be able to sell abroad.

“Small French companies just lack that critical mass to be able to export efficiently,” he said.

The Bank of France data showed the income surplus fell to 1.4 billion euros from 2.5 billion euros in June, while the services balance moved into a deficit of 400 million after a marginal surplus of 3 million euros in June.

The current account figures came after recent data showed France’s trade deficit widened sharply to the largest monthly shortfall in at least 10 years.

Many French exporters complain that the strong euro is hurting business and that rigid labour market rules prevent them from hiring and firing workers in line with supply and demand, making them less competitive.

Oil prices weigh

Trade Minister Christine Lagarde said high oil prices had weighed on Tuesday’s figures, making imports to France more expensive.

“I’m not at all crestfallen by this result, which is explained by a serious of reasons,” she told reporters on the sidelines of a conference by the MEDEF employer group.

“I think that we could draw negative conclusions if we had durably falling figures over a period of three months but over less then three months it seems unreasonable to want to raise the alarm,” she said.

Jean-Louis Mourier, economist at Aurel Leven, also said Tuesday’s figures should not be blamed mainly on weak exports.

“It’s not a weakness of exports explaining this deficit but strong domestic demand. And oil prices have also weighed on the numbers,” he said.

Recent data showed the French economy grew at its fastest pace in five and a half years in the second quarter, spurred on by a surge in business investment and strong consumer spending.

But French industry suffered a sharp and unexpected slowdown in July, with industrial output falling 1.3 percent month-on-month, casting a shadow over the government’s bright picture of the economy.

The conservative government expects growth to be between 2.0 and 2.5 percent this year and Finance Minister Thierry Breton reiterated in a radio interview on Tuesday it should rather come in at the upper end of that range.

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