Wednesday, August 20, 2003

First Germany, then Italy. Now it looks as if France, too, may be slipping into recession.
The French economy shrank by 0.3% during the April to June period, official figures revealed. France's economy, the second largest in the eurozone, steadily weakened during 2002.

However, marginally more upbeat figures in the first three months of 2003 had raised hopes of an improvement. But the latest contraction will dash hopes of a turnaround
The GDP figures for France are abysmal. The country's best quarter over 2002-03 was 2002:I when GDP growth totalled a mere 0.7%. France is only avoiding a recession call on a technicality, anyway, since GDP contracted both in 2002:IV and 2003:II while eeking out a meagre 0.2% growth in 2003:I.

Thus for all practical purposes, Germany, France and Italy are all in recession. If Japan stays in the doldrums, prepare for the US current account deficit to skyrocket later in the year.

The US balance of payments numbers for 2003:II don't come out for another month, but a close estimate is -$136.3bn -- i.e. 111% of the 2003:I goods and services deficit (in 2003:I the figure was -$136.1bn -- 112% of the goods and services deficit). If so, the US would have a current account deficit again at 5.1% of GDP, and this in a quarter in which GDP was growing and the trade deficit moderating. In the second half of 2003 GDP will probably grow, but the current account deficit will surely grow more as the US becomes the global growth engine yet again.

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