French GDP outlook firms, inflation seen worse

PARIS (Reuters) - French economic growth should be close to the government's forecast this year despite a worsening outlook for inflation and consumer spending, according to economists polled by Reuters.

Median forecasts from 14 economists showed 2008 growth slowing to 1.6 percent from 2.1 percent in 2007 but this is higher than the 1.5 percent predicted in the last quarterly poll in April.

Economy Minister Christine Lagarde has stuck to a forecast range of 1.7-2.0 percent even though economic data has worsened. But she has recently sounded a more cautious note, saying growth would be at the lower end of the range.

While the 2008 growth outlook was temporarily boosted by the robust 0.5 percent rate in the first quarter, it darkens for the second half of the year. The median forecast for 2009 slipped to 1.4 percent from 1.6 percent in the last survey but many economists are uncertain.

"The consensus hasn't really been established yet," said Mathieu Kaiser, an economist for BNP Paribas in Paris. "The question will be whether there's a pick up towards the end of the year or whether the slowdown continues."

Kaiser said the continuing financial markets crisis, persistent inflation worries, sluggish business investment and a weakening property market that hit consumer sentiment suggested prospects were not good.

"The pronounced slowdown we expect in the second half of 2008 will show up in the figures for 2009," he said.

Inflation has hit levels in recent months not seen for more than a decade. That has been the biggest headache for the government and increasingly nervous consumers, reaching 4.0 percent in June, fuelled by surging energy and food prices.

Economists in the poll saw inflation hitting an annual rate of 3.5 percent in 2008 before slowing to 2.4 percent in 2009 as the base effects from a surge in oil prices at the end of last year bring the headline rate down.

Three months ago, inflation was seen at 2.9 percent in 2008 and 1.9 percent in 2009 but has continued to surge during the second quarter of the year, creating an increasingly serious threat to consumer spending.

Supporting purchasing power has become one of the government's policy priorities but the poll suggested the outlook has grown more gloomy in recent months, as indicators of consumer morale have slumped. Economists forecast a median rise of 1.4 percent in consumer spending in 2008, compared with expectations in April of a rise of 1.9 percent.

However, room for stimulus through tax cuts or similar measures remains limited by the strained position of French public finances.

Economists forecast the budget deficit would hit 3.0 percent of gross domestic product (GDP) in 2008 and the same level next year, roughly in line with the poll in April when the deficit was seen at 3.0 percent in 2008 and 2.9 percent in 2009.