March 28, 2012 / 10:51 AM / 8 years ago

UPDATE 1-Meagre French growth offers Sarkozy little relief

* Stagnant purchasing power dogs Sarkozy

* INSEE confirms preliminary growth estimates

* Business investment, trade underpinned growth

By Leigh Thomas

PARIS, March 28 (Reuters) - France eked out economic growth of 0.2 percent in the last quarter of 2011, avoiding recession but with stagnating purchasing power, giving President Nicolas Sarkozy little respite ahead of next month’s presidential election.

Confirming preliminary estimates, the fourth-quarter data from the INSEE national statistics agency on Wednesday showed France achieved growth of 1.7 percent for the whole of 2011 and dodged the threat of a recession running up to the election.

Household spending, the traditional engine of growth in France’s consumer-focused economy, edged up 0.2 percent in the fourth quarter even though purchasing power grew only 0.1 percent when adjusted for inflation.

Opinion polls indicate that limp purchasing power and soaring unemployment are voters’ top concerns ahead of an election that takes place in two rounds on April 22 and May 6.

Nonetheless , Sarkozy took heart at figures, welcoming “signs of recovery suggesting the French economy is reaching the end of the tunnel,” government spokeswoman Valerie Pecresse s aid.

But Barclays Capital economists Marion Laboure and Fabrice Montagne said that growth was likely to stagnate in the first two quarters of the year, which would deny Sarkozy the advantage of a recovery to help polish his tarnished economic credentials.

“The deterioration in the labour market since June 2011 and sticky energy prices are weighing on household disposable real income, w hile further fiscal consolidation will depress government consumption,” they wrote in a research note.

“We believe the recovery will come only later this year and develop throughout 2013,” they added.

Sarkozy’s Socialist challenger Francois Hollande, questioned about the INSEE report on Europe 1 radio, said the economic situation in France remained “very difficult” with high unemployment and growth more or less at a standstill.

RECOVERY ON THE HORIZON

Hollande, who polls say will beat Sarkozy, reiterated plans to call for changes in a euro zone pact on deficit control to include a pro-growth commitment. He also wants to create 150,000 state-aided youth jobs and payroll tax breaks for firms that commit to keeping older employees in their job while taking on job market starters at the same time.

The INSEE report showed fourth-quarter growth was underpinned by a 1.1 percent increase in investment from the previous quarter, revised up from a preliminary estimate of 0.9 percent.

Although the business outlook was clouded at the end of the year by the euro zone’s debt crisis, corporate investment was particularly strong, rising 1.7 percent over the quarter, revised up from a first estimate of 1.4 percent.

Despite a record trade deficit last year, international trade provided a boost to France’s 1.8 trillion euro ($2.40 trillion) economy in the final quarter of 2012 with imports falling 1.0 while exports grew 1.2 percent.

The positive contribution from trade helped to offset the impact of companies running down their inventories with de-stocking knocking 0.8 percent from gross domestic product.

The INSEE institute forecast in December that France could enter a short shallow recession in the fourth and first quarters but that prospect was avoided after the European Central Bank pumped one trillion euros into the euro zone banking system, helping to prop up business and consumer confidence.

The government raised its 2011 growth forecast to 0.7 percent last week from 0.5 percent previously after INSEE issued new estimates that the economy would see a slow recovery and the labour market would continue to shed jobs.

“Positive indicators are becoming more numerous. Household confidence is rising, as is business morale,” government spokeswoman Pecresse said.

“We’re counting on a rebound in the second quarter.”

In Wednesday’s GDP report, INSEE confirmed that the economy grew 0.3 percent in the third quarter and raised its figure for the second quarter of 2011 to 0.0 from -0.1 percent previously.

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