(May 13): French unemployment unexpectedly rose to the highest level in five years, adding to signs the euro area’s second largest economy was already on a weak footing when the Iran war began.
With joblessness increasing across all age categories, the rate reached 8.1% in the first quarter, data from national statistics agency Insee showed. Economists surveyed by Bloomberg had forecast a slight decline to 7.8% from 7.9% at the end of last year.
“The unemployment figures show a slight increase, which reflects the slowdown,” Bank of France governor Francois Villeroy de Galhau said on Wednesday, adding that “the long-term progress of the French economy” should be kept in mind.
Speaking on Franceinfo radio, he highlighted that “in the last slowdown of the economy after 2012, the unemployment rate was above 10%. We are now around 8%, which is obviously not satisfactory news, but since 2010 the French economy has created more than four million jobs net,” he said.
Similarly, Budget Minister David Amiel told France 2 that the numbers are “a call for us to continue our work on this top priority.”
A turning job market would tarnish the record of French President Emmanuel Macron, who has overseen a sustained decrease in unemployment during his decade in power. His governments have attributed that improvement to unpopular labour market reforms and pro-business tax cuts that he pushed through shortly after taking office in 2017.
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While Macron cannot run for re-election next year, polls show potential candidates aligned with his economic policies are trailing behind far-right rivals who are pledging to unwind many of his reforms.
Wednesday’s worsening data come despite the government navigating a budget crisis and avoiding another political collapse in February. Figures at the end of April also showed the economy failed to expand in the first three months and a Bank of France business survey Tuesday indicated the Iran war has begun dragging on activity and fueling inflationary pressures.
Industry and construction activity advanced more slowly in April and could decline this month, the central bank’s poll of 8,500 business leaders showed. In the services sector, firms reported stagnation and see contraction in May.
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The share of companies raising prices accelerated across sectors, with 13% of industrial businesses reporting supply difficulties.
“The French economy’s resilience is starting to be put to the test,” Bank of France chief economist Xavier Debrun said. “From the start of this year our message was that France’s economy was remarkably resilient. Today we are seeing the first signs of the shock.”
Separate data on Wednesday also showed a sharp drop in the number of new companies created in April, with the business services and transport sectors particularly weak.
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