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Is France's economic recovery really 'here'?

(Xinhua)

11:02, July 18, 2013

PARIS, July 17 (Xinhua) -- Despite a faltering growth and still-rising unemployment, French Socialist President Francois Hollande is banking on his "historic" economic measures to get the ailing economy out from a recession and to achieve financial targets that analysts say are over optimistic.

In a traditional TV interview on France 2 and TF1 channels to mark the National Day on Sunday, Hollande stressed that "the economic recovery is here," arguing that a slight pick-up in industry output and consumption showed that the end of the crisis was in the air.

He added having "an already insurance that the second quarter will be better than the first."

But will France's 2.5 trillion -U.S.- dollar-economy which had not grown since the third quarter of 2011 show some muscles and defy the downbeat outlook?

Working to convince the nation that the economy is in its hands, Hollande's executive staff hoped tailwind will overcome headwinds thanks to their economic roadmap based on public spending squeeze, taxes rise on banks, big firms and the rich to help reduce the public deficit while pumping more funds into state-aided job creation.

In its recent economic report, the Bank of France revised up its gross domestic product forecast to 0.2 percent in the second quarter, citing a slight improvement in businesses in the short term. That would be music to the ears of Hollande who suffered a setback in his approval rating.

But economists cautioned that with unemployment running at a 14-year high and billions of euros of additional taxes on households and businesses, the bounce was unlikely to be maintained.

"The president seems too optimistic. We speak about recovery when we reach 2 percent. For now, we are so far from this result as the taken measures were unlikely to guide the economy to path of recovery," said Marc Touati, director of ACDEFI financial analysis bureau.

"He insisted on no tax increase in 2014 but he will do this year which may affect negatively the economic activities and further deteriorated both consumers and business confidence, a key for a recovery," he told Xinhua.

Thanks to belt-tightening, France wants to collect 10 billion euros (about 13.14 billion U.S. dollars) via a 75-percent tax on incomes above 1 million euros, and further 10 billion euros from taxes on consumers and business with 4 billion euros of tax already approved in 2012.

Already suffering from poor competitiveness and heavy losses which prompted major layoffs, the ruling Socialist's measure doomed "to make sinking" the domestic enterprises, according to Pierre Gattaz, the head of MEDEF.

"Any increase in tax makes us very afraid. We already have extremely high fees and charges, so that our businesses can no longer invest, innovate or even hire," he said.

"I heard the president announcing an exit of the economic crisis that I don't see personally with a very low order books and still anxious businessmen," he added.

In their first annual budget, the ruling Socialists want to save more than 30 billion euros for 2013, the toughest adjustment in three decades, to trim budget gap to 3.7 percent of national wealth and reach slight growth of 0.1 percent.

Blaming "persistent uncertainty and weakness of economic indicators,"the International Monetary Fund (IMF) lowered its 2013 forecast for the second largest European economy to minus 0.2-percent from a previous forecast of 0.1- percent contraction.

It also pointed that high risks of persistent stagnation in the eurozone may taint the expected "gradual turnaround of economic conditions in the second half of this year."

"The situation in the eurozone is worse than expected as activity slows in emerging markets. So we can expect an increase in interest rates on French debt, which will increase the cost of borrowing for consumption and real estate and may further halt consumption," said Christian Saint-Etienne, an economist and university professor.

Hollande, who was in a perpetual battle to lead the 65-million population to an economic growth and healthy finances, set himself a one-year deadline to reverse the rise in unemployment and promote the struggling economy in two years.

But, with no sign to go out shortly of the bottleneck, French are losing faith on the Socialists' recovery pledges and doubt they can transform a political rhetoric into concrete vision.

On Wednesday, local media reported that the government will announce later on the day 3 billion euros in subsidy cuts and tax rebates as part of reforming measures designed to reduce public spending and meet European Uuion-mandated deficit targets which has been extended for two more years to reach 3 percent of French GDP.

According to recent TNS Sofres survey, Hollande's approval rating lost two points to 27 percent in June with 70 percent of respondents said had no faith in the president to fix French economic troubles.

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