French Third-Quarter GDP Unexpectedly Increases

By Sandrine Rastello

Nov. 14 (Bloomberg) -- France's economy unexpectedly grew in the third quarter, dodging the recession that is hammering Germany as consumer spending gained and exports rebounded.

Gross domestic product in the euro-region's second-largest economy rose 0.1 percent from the second quarter, when it shrank 0.3 percent, Paris-based national statistics office Insee said today. Economists expected a contraction of 0.1 percent, the median of 24 forecasts in a Bloomberg survey showed.

A recession may just be delayed by two quarters, economists such as Bank of America Corp.'s Gilles Moec said, as companies facing a slowdown in global demand and credit crunch scale back investment and cut workers. The French government last week slashed its growth forecast for this year and next, while the European Commission predicted the euro-region economy would stagnate next year.

``The third quarter doesn't completely reflect the effects of the financial crisis,'' said Moec, who expected a stagnation. ``We've clearly been in recession territory since September.''

Germany yesterday said GDP had fell 0.5 percent in the three months through September after a 0.4 percent decline in the second quarter. Spain reported today a third-quarter contraction of 0.2 percent. Eurostat, the European Union's statistics arm, will publish third-quarter GDP data for the euro region at 11 a.m. in Brussels. The report is expected to show the euro region slipped into the first recession since the single currency was introduced almost a decade ago.

`Surprising Numbers'

In France, ``the numbers are surprising. Everyone was waiting for a negative number,'' Finance Minister Christine Lagarde said on RTL radio today. ``France is not technically in a recession.''

Still, business confidence fell to the lowest in almost 15 years in October as the global credit crisis worsened. Airbus SAS orders in the first 10 months dropped 34 percent as declining traffic and airline bankruptcies forced cancellations at the world's largest maker of commercial aircraft.

Car manufacturers are also struggling. Renault SA trimmed its full-year profit and sales forecasts and planned to cut 6,000 European jobs. Its rival, Paris-based PSA Peugeot Citroen, has said it would slash production by about 30 percent because of a ``collapse'' in the global auto market.

French manufacturers expect to decrease investment 3 percent next year, Insee reported today in a separate survey. They also scaled back their plans for this year from a July estimate, it said.

Unemployment Grows

Consumer spending rose 0.2 percent after stagnating in the second quarter, the GDP report showed. Exports and imports both rose 1.9 percent after falling the previous quarter, with trade not contributing to expansion overall. Corporate investment rose 0.3 percent after a 1 percent drop while household investment sank 1.6 percent.

Companies' cost cutting has started to show in the labor market. Payrolls fell 0.1 percent in the third quarter, Insee said in a separate report today. The number of job seekers has increased for the past five months, prompting President Nicolas Sarkozy to pledge to add 100,000 government-subsidized positions.

The Organization for Economic Cooperation and Development yesterday cut its forecast for global growth in 2009, following the International Monetary Fund in forecasting economic contractions in advanced economies next year.

``The OECD as a whole is currently in recession'' and will start recovering in the second half of 2009, Jorgen Elmeskov, the OECD's director of policy studies, said yesterday.

L'Oreal SA, the world's largest cosmetics maker, on Oct. 30 cut sales and profit forecasts for the third time in less than four months as European and U.S. consumers curbed their spending.

Some Relief

``Since September, we have noted a clear slowdown in some markets in western Europe and North America, and have been confronted with a contraction of purchasing by some distributors in view of the current economic crisis,'' Chief Executive Officer Jean-Paul Agon said in a statement.

Consumers and companies may get a respite from the euro, which has dropped 20 percent against the dollar in the past four months, and from the falling oil prices that have collapsed to under $60 a barrel from a peak of more than $147 in July, easing inflation pressure and giving central banks from Washington to Beijing room to slash interest rates.

``It's true that's an enormous shock but compared with 1993, monetary policy is not restrictive and emerging economies have reserves and can do support measures,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``We're going through the worst period, but let's not overdramatize.''

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net