Data may reveal direction French economy

France learns on Thursday whether it has joined the European countries whose economies are contracting or whether there is still hope for the growth underpinning plans to meet EU deficit targets. The national statistics institute INSEE is due to release its first estimate of gross domestic product in the third quarter in the eurozone's second largest economy. The French economy has flatlined for the three previous quarters and the figure for the period from July through September is expected to again be around zero. French Finance Minister Pierre Moscovici expressed confidence last month that the figure could end up on the positive side, while the Bank of France thinks it will come in negative. A contraction would point to France soon joining the countries in recession, which would not augur well for the wider eurozone and EU economies. The Bank of France has forecast a slight economic decline of 0.1 percent in the third quarter of the year, and a similar contraction in the fourth, which if confirmed would officially put France in recession for the first time since early 2009. The country's consumption-based economic model coupled with relatively robust savings rates and a broad network of social safety nets has helped France keep its head above water. Meanwhile neighbours like Britain and Italy slipped back into so-called double dip recessions as they cut back state spending in the midst of the global economic crisis. France is about to undertake a similar fiscal retrenchment as it tries to squeeze the deficit down from this year's target of 4.5 percent to 3.0 percent next year as it has promised its EU peers. The new Socialist government plans 12.5 billion euros of spending cuts and 20 billion euros in tax hikes next year. But plans to meet its EU pledge of bringing the public deficit back down to 3.0 percent of GDP next year are based on growth of 0.8 percent next year, after 0.3 percent growth this year. A contraction this year would require France to achieve more growth next year or undertake further fiscal retrenchment to meet the target. For their part, the International Monetary Fund and the European Commission both expect the French economy to expand by just 0.4 percent in 2013, and believe the public deficit will be higher than promised. Economists believe the government might get its wish in the third quarter. In October, Moscovici said that he hoped the third quarter would result in "slightly positive growth" given that consumption had risen by 0.2 percent and that industrial production had bumped briefly higher during the summer months. Posting a positive growth number for the first time since the new government took office in May, after President Francois Hollande trumpeted the need to focus on growth, would be handy. At his first press conference since being elected six months ago, Hollande said on Tuesday: "My mission is simple; to manage to get back to growth and reduce unemployment." But economists warn that the last three months of the year could then bring some more downbeat news. All agree that France will start 2013 with little economic momentum. The government has unveiled measures designed to make the economy more competitive, including tax breaks for businesses worth up to 20 billion euros a year. Designed to offset the high payroll taxes that have dulled the competitive edge of French companies both in the world and the eurozone, the tax credits will be financed by a combination of cuts in public spending and increases in sales taxes (VAT). Economists have long pointed out that what France lacks is a solid trade surplus like Germany's. Germany is set for a record trade surplus this year, increasing by 10 percent from the level in 2011 to reach 174 billion euros ($221 billion), the BGA German federation of exporters and wholesalers forecast on Tuesday.