Good jobs, growth outlook greets France's Sarkozy

17 May, 2007

Favourable economic news landed just before France's Nicolas Sarkozy was sworn in as president, with the French private sector adding jobs at the fastest rate in six years and growth seen picking up in the second quarter.
The number of non-farm private sector jobs added to the eurozone's second biggest economy rose 0.6 percent in the first quarter, the fastest quarterly rate of increase since 2001, national statistics office INSEE said.
That data came shortly after a Bank of France survey suggested the economy would grow by 0.6 percent in the second quarter of 2007 - a rate which would mark a pickup from the 0.5 percent reported for the first three months of the year
Sarkozy, who takes office on Wednesday, has promised to slash unemployment during his five-year term. The news of the pickup in job creation will get the right-wing government he forms off to a good political start.
"Finally a real reason to be delighted," said Nicolas Bouzou, economist at Asteres consulting. "In the context of GDP growth of about 2 percent it is practically an ideal figure. Ideal, because it means a real improvement in employment, but also ideal because it is not so excessive as to have prevented French firms from making productivity gains."
Faster job creation will go some way to addressing the French public's top concern, unemployment. Signs that wage rises are outpacing inflation was also expected to sustain consumers' spending habits, which have been a key driving force for growth.
The Labour Ministry said monthly wages rose 0.9 percent in the first quarter compared with the previous three months - three times the pace seen in the fourth quarter of 2006 - to give an increase of 2.7 percent from a year earlier.
"Today's data on employment and wages confirm the French economy is on a sound footing, at least as far as domestic demand is concerned," said Gilles Moec, economist at Bank of America in London.
"Wage increases in the first quarter of the year usually strong but in year-on-year terms, wages are increasingly significantly more rapidly than consumer prices, which bodes well for a strong contribution of consumer spending to GDP growth in 2007."
While some economists flagged the risk that overly strong wage gains could eventually erode French firms' competitiveness, business looked to be faring well so far, according to the Bank of France report. The survey's business sentiment indicator fell to 108 in April from 112 in March but the report otherwise painted a relatively upbeat picture of the French economy. "According to the business managers surveyed industrial activity firmed slightly in April," the Bank of France said.
"The outlook for activity in the coming months remains favourable for all sectors, except the automotive industry." The French car sector has gone through a tough time in the past year and is not yet out of the woods, with carmaker Renault on Tuesday reporting a decline of almost 5 percent in world-wide vehicle sales in April compared with a year earlier.

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