Sarkozy Considers New Stimulus as GDP, Optimism Slump (Update1)

Desember 19, 2008 at 2:44 pm Tinggalkan komentar

Sarkozy Considers New Stimulus as GDP, Optimism Slump (Update1)
By Helene Fouquet and Sandrine Rastello

Dec. 19 (Bloomberg) — French President Nicolas Sarkozy is prepared to add to this month’s 26 billion-euro ($37 billion) stimulus package, his chief of staff said, as business confidence fell to the lowest in 15 years and an economic slump deepened.

“The government will take all measures adapted to the situation” to support the economy, Claude Gueant told France 2 television. “Today there is nothing that leads us to think we might need more, but if needed, other measures would be taken.”

His remarks follow signals from leaders in Germany and the U.K. that an initial round of bank bailouts and economic stimulus won’t be enough to counter the recession. President- elect Barack Obama may propose a stimulus plan of $850 billion, an amount that has grown as the U.S. economy sinks deeper into a recession.

France’s economy, the second largest of the 15 countries sharing the euro, will contract by the most since 1974 this quarter and slip into a recession early next year, Insee, the national statistics office, forecast today. Separately, Insee’s confidence index slid to the lowest in 15 years in December.

“You need some big symbolic measure to break the circle of pessimism among manufacturers and households,” Jean-Louis Mourier, an economist at Paris-based brokerage Aurel Leven SA, said in an interview with Bloomberg Television today.

Sarkozy is convening his Cabinet to discuss plans to support France’s economy.

Recession Strikes

No European country will avoid a recession, Prime Minister Francois Fillon said yesterday. Germany, Europe’s biggest economy, is on course for its worst contraction since 1993 next year as a global slowdown saps export demand. The European Central Bank has cut its benchmark rate by 175 basis points to 2.5 percent since early October to buffer the economy from the impact of the global financial crisis.

Gross domestic product in France will probably decline 0.8 percent this quarter, after a 0.1 percent increase in the three months through September. The economy will shrink 0.4 percent in the first quarter, and 0.1 percent in the following three months, Insee predicted.

The global credit crisis is aggravating a world economic slowdown, damping exports and hurting corporate investment. While Sarkozy’s initial package may provide some support for growth, rising unemployment is likely to put a lid on consumer spending, Insee predicts.

Car Sales

“Almost all developed countries will be in a recession next year and France will be no exception,” Insee chief forecaster Eric Dubois said at a briefing in Paris yesterday. “The tightening of credit conditions and a general aversion to risk prompts companies to cut investment and reduce inventories, such as in the car sector.”

European car sales fell 26 percent in November, the biggest monthly drop since 1999. Automakers Renault SA and PSA Peugeot Citroen are both cutting jobs and idling plants to confront the slump in demand. Valeo SA, France’s second-biggest maker of auto components, said yesterday it will eliminate 1,600 positions in France and 1,800 in other European countries.

Insee expects the economy to lose 191,000 jobs in the first half of next year after an estimated drop of 125,000 in the second half of 2008.

“We should create 150,000 jobs with the stimulus package in 2009,” Patrick Devedjian, the minister in charge of implementing the package, said on Europe 1 radio today.

France has already agreed to aid the auto industry and has pledged 1 billion euros of low-interest loans to carmakers’ financing units, of which 779 million euros has already been paid out. The government is also funding 220 million euros in sales incentives on new cars and 100 million euros in assistance to smaller auto-parts suppliers.

Growth in France this year, at 0.8 percent will lag behind the euro region for a third year this year, according to the Insee forecasts.

To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Helene Fouquet in Paris hfouquet1@bloomberg.net.

Last Updated: December 19, 2008 05:04 EST

Entry filed under: news. Tags: .

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