The French economy contracted towards the end of 2012 and will barely grow in the first half of next year, national statistics agency Insee said Thursday, indicating that President Francois Hollande's aim to sharply reduce the country's budget deficit in 2013 could be under increased pressure, reports The Wall Street Journal.
"We had a little growth in the third quarter but this will turn out to be ephemeral," said Cedric Audenis, the head of Insee's economic forecasting department. "In the first half of 2013, we still don't expect growth motors to start up again."
After expanding 0.2% quarter-on-quarter in the third quarter of 2012, Insee said, gross domestic product in the euro zone's second-largest economy is estimated to have contracted 0.2% in the final three months of this year and is seen posting only 0.1% growth each quarter in the first six months of 2013.
If Insee is right, the French economy would have to accelerate abruptly in the second half of next year, growing 1% quarter-on-quarter for two straight quarters to meet the government's forecast of 0.8% GDP growth for the whole year, Mr. Audenis said.
France hasn't posted a growth rate as high as 1% quarter-on-quarter in over six years and hasn't recorded two consecutive quarters of growth at 1% or higher since the turn of the century.
Hitting the government's forecast will be "complicated" under Insee's scenario, Mr. Audenis said.
The government's growth forecast is crucial to keep the country on track to bring its deficit down to 3% of GDP next year from 4.5% in 2012. Weaker growth without further austerity measures will put the target out of reach.
Mr. Hollande's government has already taken tough measures, consisting mainly of tax increases, to remain on track to hit its deficit target in the face of a slowing economy. Since coming to power in May, Mr. Hollande has increased taxes by more than 7 billion euros ($9.27 billion) in 2012, and the 2013 budget will add around EUR20 billion.
Read more of this report from The Wall Street Journal.