French problems are persistent

France continues to suffer with economic problems despite overall recovery in the Euro zone and record low interest rates.

• Today current account data showed that deficit is persistent in France. Deficit was -0.3 billion.
• Moreover slowdown in both manufacturing and services sector accelerated, as indicated by recent PMI reading.

Economic problems at a glance -

• French economy is hardly growing. YoY average growth rate remains below 0.5%. Growth in the fourth quarter remained well below Euro area average as estimated by Euro stat.
• Unemployment rate still hovering above 10%.
• Industrial output in January barely grew at 0.4%, down from previous 1.4%.
• Inflation rate is maintaining below zero percent.

Budget issues at a glance -

• France failed to achieve the budget deficit target of 3% this year and asked for another extension of two years.
• The extension was granted on Tuesday by European commission but not without heated debate and discussion.
• Countries like Ireland, Portugal, Spain, and Slovakia raised concern over preferential treatment and demanded the same treatment for them.

Impact -

• French government won't possibly get another extension, which might lead to quite some cuts as current deficit stands over 4%. This is not expected to bode well for already ailing economies and sectors.
• French bonds are yielding in negative territory as ECB buys bonds however without a turnaround the bonds and CAC40 stocks might not do well in the future.