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Thursday, August 7, 2008

France Clocks Up Another Large Trade Deficit In June

France’s trade deficit widened sharply in June - reaching a record €5.64bn, exacerbated by the higher cost of oil and energy imports and weaker car exports. The trade gap - up from a revised €4.7bn in May - was significantly higher than many economists had forecast and will weigh heavily on an already sharply slowing French economy.

French exports increased 0.6 percent to 34.9 billion euros in June, with shipments to the U.S. and the Middle East declining. French business confidence fell to the lowest in more than three years last month as surging inflation and the stronger euro further dimmed the economic-growth outlook.

Growth in the second quarter is likely to be weak at best, with private sector analysts predicting expansion of between 0 and 0.2 per cent.

The trade deficit for the first half of 2008 widened to €24.4bn, up from €15.8bn in the same period last year. Anne-Marie Idrac, French trade minister, said that stripping out energy the trade deficit for the first half of 2008 had in fact narrowed by €3bn, helped by higher agricultural exports and a jump in Airbus sales.

For the last five years, the French economy has instead been dependent on domestic demand and construction. In this sense the French economy is the mirror image of the German economy, since in Germany the strong export performance until recently has driven GDP growth while domestic demand has remained weak. At the end of the day this self-dependence could turn out to be a boon. since the lesser dependence of the French economy on exports means it might be less affected by a global slowdown especially if oil prices and hence inflation ease back and the ECB starts to loosen monetary policy.

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