France struggles with jobless

PARIS, France -- Prospects for a strong recovery in France's economy dimmed on Friday as new data pointed to continuing high unemployment and falling prices for manufactured goods.

The jobless rate in Europe's third largest economy remained above 9 percent in May, and there are indications unemployment will rise further in coming months, while producer prices -- a main barometer of economic health -- fell unexpectedly last month.

"There are no signs of real stabilisation and even less of an improvement on the jobs market," Laure Maillard, an analyst at CDC Ixis, told Reuters.

"Activity is still not strong enough, and uncertainty remains both as to the impact of the stronger euro on trade, and as to whether the current financial market turbulence will delay investment.''

The number of unemployed people in France fell by 2,000 to 2.43 million in May, on a seasonally adjusted basis, the Labour Ministry said on Friday. That put the jobless rate at 9.1 percent last month, unchanged from April and in line with economists' forecasts.

Meanwhile, the national statistics office INSEE reported a 0.3 percent fall in producer prices in May from the previous month and 1.5 percent drop from a year earlier. Economist had expected May producer prices to rise 0.1 percent from April.

Also on Friday, INSEE issued its forecast for the French economy, calling for growth to pick up in the second half of this year and reach an annual rate of just above 2.5 percent. (Most economists are forecasting growth of around 0.5 percent in the second quarter and 1.2 percent for the entire year.)

But the statistics office warned the economic outlook was still unclear, due mainly to the uncertain impact of a stronger euro against the U.S. dollar -- which makes exports more expensive -- and its possible effects on the labour market.

Many economists say the unemployment picture will likely get worse before it gets better.

"We expect the unemployment rate to rise to 9.3 percent in September or October because this is a lagging indicator, which will still be reflecting today's economic slowdown,'' Jan-Eric Fillieule, an economist at CCF bank, told Reuters.

"This rate should fall to nine percent in December thanks to expected improvements in the third quarter. Until this date growth will not be sufficient to create jobs.''

France's newly elected government, led by Jacques Chiraq, has been hoping for a recovery to help balance its books.

The government is facing a rising deficit as it attempts to fund election promises of tax breaks and increased funding for public programmes. On Thursday, it revised its budget deficit, saying it now represented 2.6 percent of the country's gross domestic product, up from the previous estimate of 2.3 percent.

That puts France on a possible collision course with the European Union, which requires member states to keep their deficits below 3 percent of GDP this year and to approach a balance budget by 2004.

The jobless and producer price numbers come on the heels of relatively positive economic news for France.

French business morale has been improving along with consumer confidence, which bounced back in May to its highest level this year, after falling to a four-year low in the previous month.