PM calls meeting as economy shrinks

PM François Fillon called a special meeting of ministers to discuss the economy after it shrank by 0.3% in the last four months.

It is the first time since 2002 that GDP has shrunk.

He said there would be no action plan as anything done at this stage would be artificial. The PM added that any response to what he termed the “economic slowdown” would need to be tackled on a European level.

The prime minister’s office said that Economics Minister Christine Lagarde, Trade Minister Anne-Marie Idrac and four other key government members had "analysed the causes" of the slowdown and "identified responses”.

Economists say France will be in a full-blown recession if the growth figures continue to drop in the third quarter.

The Bank of France earlier forecast growth for the third quarter at just 0.1%.

The government has maintained it is still hoping to achieve growth of between 1.7% and 2% in 2008, despite criticism from economists who say the actual outcome will likely be closer to 1%

The Socialist opposition has called on President Nicolas Sarkozy to go back on billions of euros in tax breaks that were doled out in a fiscal stimulus package adopted soon after his election in May 2007.

"We are not in a recession but we are feeling the effects of a brutal, difficult crisis", said Socialist Didier Migaud, chairman of the parliamentary finance committee.

"The problem is that we have extremely limited room to manoeuvre because we have wasted quite a bit over the past year. So maybe we should have the courage to put the fiscal package back on the table," Mr Migaud said on France Inter radio.

The INSEE statistics office on Thursday said output had recoiled under global pressures in the second quarter, contracting by 0.3%.

INSEE had previously forecast that the economy would grow 0.2% in the second quarter.

Photo:Afp/FRED DUFOUR