France asks Hollande: recovery - what recovery?
PARIS (Reuters) - Facing TV cameras on the sun-dappled lawn of the Elysee Palace earlier this month, Francois Hollande berated the French for their notorious pessimism and told them a long-awaited economic recovery had already arrived.
It was part of the president's unashamedly upbeat drive to give what he calls a "jolt of confidence" to Europe's second largest economy: things will start looking better if only you believe they are.
Yet for the ordinary person in the street right up to the boardrooms of France's biggest companies, the outlook still looks a lot less comforting than it does from the manicured gardens of the Elysee.
"There's less and less work and more and more people fighting for it," said Nicolas, 42, self-employed for the past month after he had to shut down the kitchen installation company he launched 13 years ago.
"Things are not getting better, on the contrary, the crisis is there to stay," he said as he took a break from work at a fast-food venue in central Paris.
Backing Hollande's assertion that France has already left a shallow recession behind it, recent figures have shown a rise in industry morale to its highest in over a year and industrial output is better than expected.
Manufacturing activity shrank at its lowest rate in 16 months in May, according to Markit's purchasing managers index, adding to the evidence that France may have bottomed out after national output contracted for two quarters in a row.
Hollande pointed to May's bounce in consumer spending, the traditional driving force in France's economy, as grounds for optimism. But in fact much of the rise was simply due to higher heating costs tied to unseasonably cold weather - a one-off that was sharply reversed in June as the sun came out.
A more telling insight into French consumer morale is the nation's holiday choices: according to the Protourisme survey group, nearly one in two French will cut their holiday budget this summer while no fewer than 70 percent of hotel and camping nights sold in July were at a discount.
The outlook is equally uncertain from blue-chip French companies, whose latest financial results this month showed that the strongest growth is coming from outside France.
Retailer Carrefour (CARR.PA) noted a gentler decline in same-store sales at its core French hypermarkets through the second quarter but said it was too early to call it a trend.
France's second-biggest private broadcaster, M6 (MMTP.PA), saw a continued contraction in the TV advertising market in the second half while top broadcaster TF1 (TFFP.PA) restated a sales target it had already reduced to reflect the weak economy.
"France probably reached bottom at some point at the end of last year or beginning of this year but I'd be very careful about the speed of recovery," said Deutsche Bank European economist Gilles Moec.
The INSEE statistics office estimates the 2-trillion-euro economy grew 0.2 percent in the second quarter after shrinking 0.2 percent in each of the previous two quarters. Official second-quarter output data is due on August 14.
But it considers the economy will still marginally contract overall this year, after being largely flat most quarters since a previous recession four years ago, only once growing by more than one percent in that period.
And while industrial output jumped in April and eased only slightly in May, it remains more than 10 percent below its pre-crisis point in 2008 - a level economists say is not enough to make a lasting impact on business activity or employment.
"A sustainable recovery happens when both hiring and capex decisions are in positive growth territory and this is not a near-term prospect," said Societe Generale's Michel Martinez.
Indeed, INSEE forecasts that business investment will keep contracting throughout 2013, after shrinking for five quarters in a row and shedding over nine percent since 2008.
That in turn is largely due to a structural French problem - business profit margins at their lowest since the mid-1980s due to a combination of factors including rising labour costs.
Comparable national accounts-based data show French corporate profit margins were the lowest in the euro zone at 28 percent in the last quarter of 2012, far behind Germany's 48 percent and the euro zone average of nearly 38 percent.
That augurs badly for Hollande's top economic and political priority: fulfilling a pledge to reverse by year-end a rise in unemployment currently stuck above 10 percent.
Jobless claims rose to another record in June after a pause in May, although some noted the near-15,000 increase was less than half the monthly average increase in the first four months of the year.
Yet INSEE expects the net destruction of jobs will continue for the rest of the year, even if the rise in unemployment will be contained by government-subsidised jobs.
"We are still very far from a level of growth that is strong enough to cut down unemployment," Deutsche Bank's Moec said.
He forecast growth would not outpace productivity gains he estimated at an average 1.5 percent of output - and so not create jobs - until late next year At the earliest. The International Monetary Fund only sees 0.8 percent growth for the whole of 2014.
In the meantime, the fact that France remains a large economy at the core of the euro zone means that others are nervously watching its battle to consolidate recovery.
"The crisis in other states is somehow bearable," a senior ally to German chancellor Angela Merkel, Rainer Bruederle, said
last week. "But if France doesn't get back on its feet, that would be tragic ... We can't manage without France."
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