UPDATE 1-Rising French trade deficit clouds recovery

Published 10/07/2010, 06:43 AM
Updated 10/07/2010, 06:48 AM

* Weaker Airbus sales help drag down Aug exports

* Economists warn that strong euro may hit growth

(Adds details)

By Daniel Flynn

PARIS, Oct 7 (Reuters) - France's trade deficit rose sharply in August versus the previous month, due partly to a decline in volatile sales of Airbus planes, raising concerns over the strength of France's recovery ahead of 2011 austerity measures.

The French customs office said the trade deficit in the euro zone's second largest economy rose to 4.93 billion euros in August from a revised 4.42 billion euros in July. That was far above a Reuters consensus estimate of 4.2 billion euros.

Imports totalled 39.030 billion euros against a revised 38.128 billion the month before, while exports came in at 34.098 billion versus 33.705 billion in July. (For a table click [ID:nLDE6960F9])

France sold 16 Airbus planes in August for 1.133 billion euros, versus 30 planes in July for 2.002 billion, as exports to Asia and the United States declined. Exports of cars and petroleum products, electronic goods and metal products remained strong, the ministry said.

"This shows we cannot rely on trade to power the recovery ... and now that the euro is rising, exports are likely to suffer," said Marc Touati, chief economist at brokerage Global Equities.

For the first eight months of the year as a whole, the deficit rose by 6 billion euros versus the same period of 2009 to 33.7 billion euros, due partly to an increase in energy imports due to higher oil prices.

Exports to emerging economies boomed, with sales to China up 45 percent year-on-year and Russia rising 27 percent, far ahead of growth in sales to France's euro zone partners.

Touati, who forecasts above-consensus growth of 2.0 percent for next year in line with the government's estimate, said the strength in the euro could easily knock 0.5 percentage point off French growth next year if it stays at current levels.

The euro was trading around $1.397 on Thursday , well above the French government's estimate of $1.31 for this year and $1.30 for 2011.

"Economic growth still remains fragile ... and consumption is already showing signs of weakness with the end of some stimulus measures, and more to come next year," he said.

France's 1.9 trillion euro economy grew by 0.6 percent in the second-quarter but foreign trade was a drag on second-quarter GDP figures, subtracting 0.3 percent point from growth.

However, economists are concerned that trade could continue to weigh on growth, particularly if household consumption, which accounts for around 60 percent of aggregate demand, is hit by austerity measures.

The French government aims to pare back its deficit by around 40 billion euros next year, using a combination of cuts in tax exemptions and withdrawal of stimulus measures, in a bid to cut its deficit to 6 percent of GDP next year from 8 percent in 2010.

However, many economists have warned the budget is based on an optimistic growth estimate of 2 percent of GDP to support an increase in tax revenues. (Reporting by Daniel Flynn; Editing by Toby Chopra)

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