Data dent hopes of French renaissance

July’s French industrial production data were a blow to hopes that the economy is staging a longawaited recovery. With business surveys at low levels, consumer confidence weak, unemployment rising and house prices falling, we were not surprised to see the Government revise down its GDP forecast for 2014 from 1.2% to 0.9%. Indeed, we fear that the economy will stagnate again. This could have worrying implications for the public finances. The Government has revised up its deficit projection for this year from 3.7% to 4.1% of GDP and we doubt that the €18bn in new austerity measures announced last week will allow it to achieve its 2014 target of 3.6%. Its struggles might lead it to adopt a more sympathetic stance towards the periphery, but could also prompt French bond yields to rise and increase political tensions within the region’s core.