FRANCE HAS LITTLE ROOM FOR MANOEUVRE, OECD SAYS

  French industry is failing to produce the
  goods its markets need and its loss of competitiveness has left
  the government little room for manoeuvre to reflate the
  economy, the Organisation for Economic Cooperation and
  Development said.
      With gross domestic product likely to grow only 2.1 pct
  this year, the same rate as last year, unemployment could climb
  to 11.5 pct of the workforce by mid-1988, from its present 10.9
  pct, it said in an annual review of the French economy.
      The report said the French economy was "increasingly
  ill-adapted to demand" selling goods at "uncompetitive relative
  prices on both domestic and export markets."
      "France's poor export performance reflects a geographical
  bias in favour of markets less dynamic than the average...
  And...A substantial loss of market share...In the past 18
  months," it said.
      Pointing to a likely widening of the French trade deficit
  to around 2.9 billion dlrs this year from 2.4 billion in 1986,
  it warned that a further depreciation of the dollar against the
  franc could lead to "a (renewed) loss of competitiveness
  relative not only to the United States but also to the newly
  industrialised countries."
      This could result in further major losses of market share,
  particularly in the non-OECD area, which accounts for almost a
  quarter of French exports, it said.
      Until the competitive ability of industry improved, the
  authorities would have "little scope for macroeconomic
  manoeuvre, even if the unemployment situation or the need to
  encourage a pickup in investment could require demand to grow
  more briskly," it added.
      But rising unemployment could help to hold down wage
  demands, contributing to a slowdown in inflation to around a
  two pct annual rate this year and early next, the OECD said.
      Written mainly in December last year, the report took no
  account of a rise in oil prices early in 1987, and a 0.9 pct
  surge in January consumer prices, caused partly by the
  government's deregulation of service sector tariffs.
      "We took a bet that the freeing of prices would not provoke
  runaway rises, and it is not absolutely certain that bet has
  been lost," one OECD official commented.
      OECD officials said the January data and a rise in oil
  prices above the 15 dlrs a barrel average assumed in the
  report, indicated an upward revision in the inflation forecast
  to around 2.5 or three pct.
      The government last week revised its forecast up to between
  2.4 and 2.5 pct from two pct, against last year's 2.1 pct.
      But the OECD backed the government's view that the
  underlying trend for inflation remained downwards this year,
  with a slowdown in domestic costs taking over from last year's
  fall in oil and commodity prices as the chief cause of
  disinflation.
      With French unit productivity costs now among the lowest in
  the OECD area, the inflation differential between France and
  its main trading rival, West Germany, could fall to just one
  pct this year, it said.
      On the other hand, the report noted, consumer prices for
  industrial goods and private services have been rising steeply
  as companies built up their profits.
      "For the disinflationary process to continue , and price
  competitiveness to become lastingly compatible with exchange
  rate stability, it is essential that wage restraint continue,"
  it said.
  

