The French might have reason to be merry during the Christmas season, because instead of a further economic plunge as predicted by the OECD, France has witnessed expansion instead in 2009.

But how long this merriness will last remains a question for most of the French, who are still suffering from rising unemployment and bloated public deficits.

Thanks to 0.3 percent GDP growths in both the 2nd and 3rd quarters, the French Central Bank predicted a 0.5-percent expansion for the last three months for an overall 2009 contraction of between 2.25 percent and 2.5 percent.

Some were already jubilant enough to think that France is the first country out of recession in Europe and the OECD, in that France's contraction rate is lower than the OECD prediction of 3.3 percent. Its contraction rate is also lower than Germany's 4.8 percent, Italy's 4.6 percent and the Eurozone's average of 4.1 percent.

Economists have attributed France's growth to the country's stabilizing factors.

Stabilizers seem effective

France is the only Eurozone country that had a more or less appropriate interest rate applied by the European Central Bank, which led to less structural distortion in its economy. As a result, French banks suffered less than their continental peers in the 2008 financial crisis and demanded less capital injection.

With 20 billion euros worth of government help, most major French banks have already reimbursed and paid interests of up to 1 billion euros back to the government.

France has a more stable real estate market than the United States or Britain. Its reliance on mainly fixed rate mortgage coupled with cautious banking practices makes the French market less prone to sharp upturns or downturns.

According to the National Association of Real Estate Agents in France, housing prices rose 3.9 percent in the 2nd quarter in France while prices remained at a standstill in other markets.

The large government stimulus packages for SMEs and start-ups helped the French industrial production achieve a steady recovery through the recent months to October. Orders were increasing while services also registered a strong gain, though at a slower pace than manufacturing.

Due to its stable annual population growth of around 0.5 percent, French household spending has remained positive on an annual basis throughout the crisis. The country could expect a dynamic domestic consumption in the longer run whereas other European countries have had a population shrinkage.

Given its demographic economic feature, there is sufficient autonomous domestic demand left in France for the stimulus package to work and work effectively.

Resilience with uncertainty

Though official figures signaled timid recovery, structural constraints if not dealt with immediately and properly may derail the reported French rebound.

The biggest constraint is the shrinking job market. With the 3rd-quarter unemployment already at 9.1 percent, the number of French unemployed is forecast by the national statistical institute to reach 10.1 percent before the year ends, the highest in five years and much higher than the predicted 7.4 percent.

The high unemployment rate will demand more social security spending from the government budget, which has already been heavily burdened by the fiscal expansion in late 2008. The budget deficit as a percent of GDP is expected to rise to around 8 percent in 2009 and 9 percent in 2010, up from 3.4 percent in 2008.

The deficit of the main social security scheme is expected to double to 20.1 billion euros by the end of 2009, and to rise further in 2010.

The European Commission, the executive arm of the European Union, predicted unemployment rates of 10.2 percent and 10.0 percent for 2010 and 2011 with GDP growths at 1.2 percent and 1.5 percent for France. France itself forecast only a 0.75-percent expansion for 2010 with an inflation rate of 1.2 percent.

French Prime Minister Francois Fillon explained there would be little margin for job creation and little improvement of the budget deficit without a 2-percent growth.

While government tends to indicate that the French economy is picking up, public opinion disagrees. A survey conducted in November by the financial daily La Tribune showed that 64 percent of the respondents did not think that France is out of recession.

This pessimism was demonstrated by the respondents' willingness to spend on Christmas gifts. As 51 percent of the respondents considered their purchasing power to be lower than in 2008, they were prepared to spend 650 euros instead of the European average of 700 euros.

The La Tribune survey also showed that two thirds of SME directors still felt the pressure of recession and that one out of five considered laying off workers in order to offset reduced business activities. And most enterprises preferred to hold off or even cut investments in equipment and research until the overall economic environment improves and recovery is assured.

With a traditionally domestically oriented market, the constraints plus the pessimistic sense among the French public tend to subdue growth in 2010.

This is because the comparatively effective stabilizers were not strong enough to hone the competitive edge of the French companies, let alone whet the consumer appetite of the French public.

(Xinhua News Agency December 8, 2009)