(Bloomberg) -- The Bank of France expects the economy to stagnate in the fourth quarter after growth was boosted by the Paris Olympics in the previous three months and as the political situation continues to add to business uncertainty.
Underlying activity should increase slightly at the end of the year, according to the central bank’s monthly survey of company chiefs for October and other indicators. But the comparison with the third quarter, when the Paris Games lifted output, will mechanically shave 0.2 percentage points off expansion.
This would mark the first quarter in nearly three years in which France has failed to record growth.
“The survey shows resilience, but also strong uncertainty among entrepreneurs,” Bank of France Governor Francois Villeroy de Galhau said on France Inter radio on Wednesday.
The French government is counting on the resilience of the economy as it attempts to close a gaping budget deficit. A slump in tax receipts amid slow consumption and investment is one of the key factors that has undermined public finances.
However, the debate over tens of billions of euros of tax increases and spending cuts that the minority government wants to push through next year has weighed on the business mood, casting a cloud over the broader economic outlook.
The Bank of France’s gauge of uncertainty remained at higher levels in October than before snap elections in the summer, with executives citing concerns over economic and fiscal policy, the central bank said.
In another sign of caution for the French government, data on Wednesday showed unemployment rose slightly to 7.4% in the third quarter. Villeroy called for vigilance on the labor market, but also said the longer-term trend remains positive.
The Bank of France expects unemployment to rise “moderately” to between 7.5% and 8% next year, before declining again toward 7%, he said.
“If you look over the long-term, the French economy has created more than 2 million jobs in 10 years,” Villeroy said. “But in the short-term, the economic slowdown means we have a slowdown in employment.”
(Updates with comments from Bank of France governor starting in fourth paragraph.)
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