How Issues with the French Economy are Threatening the Eurozone Recovery

A year has proven to be a long time for the French economy.

As the second largest economy in the eurozone, France was once at the heart of plans to effect a recovery from the financial crisis. As the nation itself showcased robust economic growth during the final financial quarter of 2012, it was considered as being crucial to driving long-term expansion in the eurozone and laying the foundations for a recession-free climate. As we approach the end of 2013, however, this trend has reversed amid high levels of unemployment and issues concerning job creation.

French Economic Decline and the Role of Rising Unemployment

Unemployment is certainly at the heart of the French economic decline, as this hit a new high during the month of September, This marked the continuation of an ongoing trend, as the number of individuals without work reached its highest volume since the depth of the eurozone crisis in 2009. A further 60,000 people filed unemployment claims in September, which brought the cumulative total to a worrying 3,295,700 million. Although this only represented a 1.9% increase from August’s figures, it was up 8.1% from the same period in 2012.

The initial figures were countered by the French Labour Ministry, however, who claimed that a technical glitch meant that some job seekers were inadvertently excluded from August’s numbers. This does not disguise the scale of the crisis facing the French economy, however, or the course that the nation has taken since last winter. The underlying weakness in the economy is subsequently underpinning a devise cycle in France, with a fewer jobs being created and a higher number of people struggling to find permanent employment as a result.

How French Economic Decline is Impacting on the Eurozone

Conversely, this decline in the French economy has come at a time when the eurozone is beginning to enter a sustained period of growth. While expansion in the fourth financial quarter is unlikely to reach its projected estimates, however, growth of 1% will at least ensure that the eurozone continues to move in the right direction. After more than 18 months of recession and austerity measures, even marginal growth should be considered as a victory for business and consumers who are active within the eurozone.

With this in mind, it would appear as though the French economic decline has yet to impact on the eurozone recovery. This could yet change, however, especially with some economic experts forecasting that the eurozone is likely to encounter further stagnation at the beginning of 2014. If this were to happen, the continual decline of one of the eurozone’s largest economies could have a serious impact on the prospects of long-term recovery. More specifically, the debilitation of such an influential economy would undermine business confidence and establish negative sentiment amongst consumers.

The Last Word

With the Alpari newsroom continuing to deliver updates concerning developments in the eurozone, investors and economic experts will soon be able to determine if the issues facing France will undermine recovery within the region. While there is bound to be some impact, however, it is important that governments, business owners and investors are prepared for this and capable of minimising the effects.