France Business Forecast Report Q1 2014 - New Report Available

France's economy is showing signs of a sharp economic slowdown in light of the deteriorating global macroeconomic backdrop. While a return to recessionary conditions remains outside our core view for now, we note that the French economy, and in particular the domestic banking sector, is highly susceptible to a further intensification of the eurozone sovereign debt crisis.

We expect rising pressure on the government to engage in more concerted fiscal consolidation over the coming quarters, particularly as lower growth begins to translate into diminished government revenues. While France has thus far not fallen prey to the bond vigilantes like the peripheral countries of the eurozone, the country nonetheless has one of the largest public sector debt piles in Europe and remains susceptible to contagion effects.

Full Report Details at
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Major Forecast Changes

We have revised up our 2013 real GDP estimate to 0.0%. In line with our recent downward growth revisions, we have downgraded our projections for France's fiscal deficit, and now forecast the government will miss its 3.0% of GDP target in both 2013 and 2014. We expect the budget deficit to arrive at 4.2% of GDP in 2013 and 3.6% of GDP in 2014.

Key Risks To Outlook

Downside Risks To Fiscal Forecast: The possibility of a further intensification of the eurozone sovereign debt crisis and the potential need for state-led capital injections in the domestic banking sector keeps the risks to our fiscal deficits over the medium term firmly to the downside.

Rising Debt Loads Could Weigh On Growth: We see continued hazards to the fiscal outlook on the horizon, including the potential for interest rate shocks, further fiscal slippage and a stagnant growth environment, and caution that the next 24 months will be extremely important in determining France's long-term debt trajectory.

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