The French economy stalled in the second quarter unexpectedly as consumer spending plunged and investors returned to focus on the second largest economy in the euro area. Consumer spending fell by 0.7%, while exports were flat. Investment was the only significant contributor to growth, gaining 0.9%.
The French National Statistics Institute Insee reported today that the Gross domestic product came flat in the second quarter compared with the first quarter expansion of 0.9% and below expectations of 0.3% expansion.
On the year, the GDP expanded by 1.6% and was revised lower 2.1% from 2.2% and below market expectations of 2.0%.
President Nicolas Sarkozy's target of 2% growth for 2011 may be jeopardized by the slowdown, which is a key component in the government's plans to reduce its deficit. Credit default swaps on French bonds doubled in the past six weeks because of concerns about debt and slow growth also it caused the yield spreads against German bunds to rise to a record this week as speculation rise that the French top credit rating might be cut although rating agencies maintain a stable outlook for the AAA French rating.