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France sees war worry lifting
PARIS, France (Reuters) -- French Finance Minister Francis Mer said on Monday the uncertainty linked to the war in Iraq appeared to have lifted, freeing French economic growth to gradually return to levels of two to 2.5 percent a year. "It is clear that the uncertainty linked to this war has disappeared...and this is a positive element for all global economies,'' Francis Mer told Europe 1 radio in an interview. "I think that from now, this factor of uncertainty having disappeared, economic growth should gradually return to levels of two to 2.5 percent,'' he added. Sounding a more sobering note, the French central bank said a recent business survey pointed to lower economic growth in the second quarter of this year, further job cuts in industry and continued uncertainty about business activity in coming months. The March survey said French gross domestic product was expected to come in at 0.2 percent on a quarterly basis in the first and second quarters of 2003. The second-quarter outlook was 0.1 percentage points lower than forecast previously. However, the Bank of France said the latest survey may be ``negatively skewed'' because most replies from the thousands of firms involved had been registered at the start of April at a moment of maximum uncertainty over the war in Iraq. The French government forecast is for growth of 1.3 percent in 2003 after 1.2 percent in 2002. The government abandoned a previous 2.5 percent target for 2003 in February. The 2003 forecast means France, for the second year running, is likely to bust the three percent budget deficit limit set out under the European Union's Stability and Growth pact. Last week, Budget Minister Alain Lambert estimated the deficit would be between 3.4 percent and 3.6 percent for the year, nudging up the government's previous forecast of 3.4 percent of gross domestic product. Inflation has also been rising in France, propelled to an annual rate of 2.6 percent in March -- its highest level in almost 11 years -- by a spike in oil prices caused by the war in Iraq, home to the world's second largest oil reserves. However Mer said he was not worried by inflation. "There is no risk of inflation in France, as in the United States. More generally... we are all convinced that inflation will come in at under two percent everywhere in the world (this year),'' he said. "It is clear that oil prices are falling, and now the problem is to avoid them falling too far,'' he added. Hope for businessMer said the current economic situation was looking more rosy than a month ago and weary businessmen should take heart. "We have to return our old colleagues, the entrepreneurs, to the path of growth. That involves showing them that things are not as black as we feared at one time, that interest rates are historically low in the world, inflation is not a problem and consequently companies must do their work,'' he said. "The uncertainty... is a lot less strong now than a month ago (and) they have the means and the opportunity to return to their business as before.'' This month, the European Central Bank left interest rates unchanged at 2.5 percent -- a historically low level. At the weekend, Mer attended a meeting for finance ministers and central bankers of the Group of Seven industrialised nations (G7) in Washington which discussed Iraq. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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