French Growth Slows to Crawl in 2010

The pace of France’s economic growth slowed at the start of 2010 as a government vehicle scrappage scheme was phased out, according to preliminary figures released by the national statistics agency, Insee.

Insee said French gross domestic product growth of 0.2 percent in the first three months of the year would be followed by 0.3 percent growth in the second quarter.

That puts it in line with average growth among the 16 nations that share the euro currency, Insee said in a report released late Thursday.

But the first quarter growth is lower than the agency forecast in December, when it predicted 0.4 percent. That’s because the fourth quarter pace of growth of 0.6 percent was more dynamic than expected thanks to the scrappage scheme.

“Our scenario is for a gentle rebound,” said Sandrine Duchene, head of the of the Insee forecasting department.

“Companies are slowly starting to invest again” and there is “less of a degradation on the labor market.”

France’s annual 2009 economic output contracted by 2.2 percent, the largest drop since after World War II.

Duchene said there are risks that France could slip back into recession but that is not her agency’s central scenario.

Governments ramped up spending to fight off the worst of the crisis, but in Europe investors are increasingly worried that rising debt in Greece, Portugal and other nations that use the euro could upend a nascent global recovery.

Duchene said “there are strong uncertainties about sovereign debt in the euro zone,” but that she doesn’t expect the debt crisis in Greece to envelop the region.

“Our central scenario is not to have an all encompassing crisis, and no contagion from the few sporadic difficulties on certain sovereign debts in the euro zone,” she said.

But she said “there is always a risk” that things could go wrong.

In France, the rise in unemployment should ease distinctively by mid-2010, the agency said. The unemployment rate is seen at 10.2 percent in the second quarter compared to 10.1 percent in the first quarter and 10 percent in the fourth quarter.

Exports should also start to improve by the middle of the year.

Industrial production is a long way from returning to pre-crisis levels. In the construction sector, production should contract in the first quarter and bounce back slightly in the second quarter, Insee said.

__

Associated Press writer Cecile Brisson contributed to this report.

BY EMMA VANDORE, AP Business Writer PARIS