France seems to be the only EMU nation who is undergoing a larger fiscal tightening in 2013 than it did in 2012.
While many of its austerity measures are clearly necessary, such action (combined with poor private sector competitiveness) is translating into a significant divergence in growth between France and the rest of the Eurozone. As discussed earlier (see post), the French composite PMI (manufacturing + services) has deviated sharply to the downside.
With this weakness in the corporate sector, it was not surprising to see Hollande announcing that France will miss its target on GDP growth this year.
Fox News: - French President Francois Hollande has said his country will miss its economic growth target this year. Speaking during a brief visit to Athens on Tuesday, Hollande said that "everyone knows that for 2013, we will not reach our target, which was 0.8 percent."There may be a lesson here for the US, which is quickly approaching the so-called "sequestration" (see discussion). An ill timed, sharp fiscal tightening could have a severe impact on a nation's economic growth.
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