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  • Nov 10th, 2005
  • Comments Off on French economy likely to brush off effect of riots
Fragile consumer confidence is likely to be the main economic casualty of the rioting in France, with the impact on growth and the budget expected to be marginal as long as calm returns soon.

So far there are few signs that two weeks of violence in the suburbs of Paris and other cities has done any long-term harm to France's ability to attract foreign direct investment.

Images of youths setting fire to vehicles and nightly clashes with police are expected to stoke households' anxiety about economic and political stability, economic analysts say.

This is likely to dent consumer confidence in the euro zone's second biggest economy, already at its lowest level since 2003, and could even knock business confidence which has so far proved much more buoyant.

Households could defer spending as a result but economists said this should not have much impact on growth if the unrest does not persist, especially as economic activity could have a boost when damaged areas are repaired and burned cars are replaced.

"The riots will affect confidence and may even affect the pattern of consumer spending but it will be hard to spot any effect on the aggregate growth figures," said Rob Carnell, senior economist at ING in London.

"There has been a negative impact on infrastructure and we could also see tourism affected at the margins, but there will be repurchasing of cars and rebuilding and repairing going on so net-net the impact on growth will be too small to detect."

ING is leaving unchanged its growth forecasts for France of 1.6 percent for 2005 and 1.8 percent for 2006.

Dominique Barbet, economist at BNP Paribas, also sees little lasting economic fallout from the riots and very limited impact on the budget deficit, which the government is hoping to bring below the EU cap of 3 percent of gross domestic product in 2006.

"Consumer confidence will be affected and the general mood may mean households will be a bit more negative about their financial situation, but the drop in confidence should be of the order of only one or two points and not lasting," Barbet said.

"The budgetary impact is likely to be something like 150 million euros combined for this year, next year and 2007 so it is really negligible."

Some sectors might feel the pinch more than others.

French business group MEDEF has already expressed concern about the damage that restaurants, hotels, and the tourism industry in general might suffer, particularly if foreign tourists take their holidays elsewhere.

"The impact of what's been happening for over 10 days is already being measured in services such as restaurants and hotels. We are measuring the consequences for tourism," Laurence Parisot, head of business lobby MEDEF, said earlier this week. "France's image has been deeply damaged."

Copyright Agence France-Presse, 2005


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