French trade deficit hits record level

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France’s trade deficit widened sharply in June to a record €5.64bn, exacerbated by the higher cost of oil and energy imports and weaker car exports.

The trade gap - up from a revised €4.7bn in May - was significantly higher than many economists had forecast and will weigh heavily on an already sharply slowing French economy.

Growth in the second quarter is likely to be weak at best, with private sector analysts predicting expansion of between 0 and 0.2 per cent.

The trade deficit for the first half of 2008 widened to €24.4bn, up from €15.8bn in the same period last year, according to figures from French Customs, published on Thursday.

“The sky has once again darkened over the French economy,” said Alexander Law, chief economist at Xerfi, a Paris based consultancy.

Anne-Marie Idrac, French trade minister, said that stripping out energy the trade deficit for the first half of 2008 had in fact narrowed by €3bn, helped by higher agricultural exports and a jump in Airbus sales.

The trade gap has weighed on French growth since 2003 as French companies failed to exploit the rise in global demand.

For the last five years, the French economy has instead been dependent on domestic demand and construction. The model is the mirror image of the German economy, whose strong performance until recently has been driven by exports.

Since the French economy is less dependent on exports than Germany, it could be less affected by a global slowdown.

However, it points to the underlying problem of the lack of competitiveness of French companies, not just in terms of price but also because of a lack of innovation in their products, according to a recent report from HSBC.

Although the deterioration in the deficit can be partly explained by the soaring price of energy imports and the rise in the euro, French manufacturing businesses have also lost market share inside the eurozone.

The downturn in the auto industry has hurt French exports, but this effect may be partially offset in the coming months by the arrival of new models.

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