French economy speeding downhill, business boss says

PARIS Wed Jun 6, 2012 1:56pm EDT

Related Topics

PARIS (Reuters) - France's economy is deteriorating rapidly due to uncertainties over the future of the euro zone, the head of the main employers' body said on Wednesday, as a poll showed two-thirds of businessmen lacked confidence in President Francois Hollande.

France, the euro zone's second largest economy, posted zero growth in the first quarter as consumption stalled, exports slowed and businesses cut back their investment.

With the euro zone crisis intensifying amid doubts over Greece's future in the bloc and the resilience of Spain's banking sector, many economists expect France's economy to contract in the second quarter before returning to anemic growth later in the year.

Laurence Parisot, the president of the Medef employers' association, said business activity had worsened dramatically in the last month, with company orders falling and liquid assets weakening.

"What is worrying is that the economic situation is deteriorating... it's deteriorating relatively quickly," Parisot told RTL radio. "There is an acceleration that worries us."

"It can be explained by the uncertainty over the future of the euro zone. You have to understand that companies are putting investment projects on hold given the doubts surrounding not just the situation in Greece, but also Spain."

European leaders are set to discuss measures for closer fiscal and economic union at a June 28-29 summit in an effort to stabilize debt markets and lay the groundwork for a return to growth.

France new Socialist government is pushing for a joint mechanism for banking regulation, including a common resolution fund and deposit guarantee mechanism, which would break a vicious circle between weakening national finances and ailing banks in countries such as Spain.

At home, it is trying to prevent a feared wave of factory closures with a planned law to force companies to sell plants they want to get rid of as unemployment runs at close to a 13-year high.

However, a poll by Viavoice for Les Echos newspaper showed that 75 percent of businessmen were "not confident" in the health of the French economy for the coming months.

The survey of 507 managers in companies of five employees or more showed two-thirds had no confidence in the ability of President Francois Hollande - who took office last month - to strengthen economic growth.

A recent survey of purchasing managers at French firms suggested that activity in the service sector shrank at its steepest rate in seven months in May.

(Reporting By John Irish and Daniel Flynn; Editing by Adrian Croft, John Stonestreet)

FILED UNDER: