French government hails signs of recovery France's Socialist government has seized on a marked improvement in foreign trade performance to bolster its claims that the economy is poised to emerge from a long period of gloom. After more than a year of zero or negative growth, which has seen unemployment rising towards 11 per cent, the government is desperate that tentative signs of recovery across the eurozone should take root in France. A welcome new indicator appeared on Wednesday with figures showing that the trade deficit shrank by a third in June to €4.4bn compared with the same period last year, reducing the deficit in the first half below €30bn for the first time since 2010. Much of the improvement was due to a drop in imports as French consumers tightened their belts. But there was a small uptick in exports in June that signalled some hope for recovery from an alarming slide in competitiveness in recent years. "Foreign trade will be a key engine of growth in 2014," said Nicole Bricq, the trade minister. The eurozone is coming out of recession. Our competitiveness reforms are bearing fruit and will continue to do so. This bullishness may be over-optimistic. The Bank of France on Wednesday forecast just 0.1 per cent growth in the third quarter after a small recovery in the second quarter. Latest projections from the International Monetary Fund this week foresaw the economy shrinking by 0.2 per cent overall this year before squeezing out 0.8 per cent growth in 2014. But some of the gloom may have been overdone. Fabrice Montagné, an economist at Barclays in Paris, said he was never "a believer that the French economy was going down the drain." The glum mood, reflected both in public opinion polls and in industry and service sector indices, was often worse than reality, he said. Latest French industry PMI indicators from Markit were at their highest levels since 2009. A survey for Les Echos, the financial newspaper, of 31 of the top 40 companies in the CAC 40 stock market index to have reported first-half results so far, showed that although profits were down overall by 1.4 per cent on the same period last year, almost 70 per cent exceeded analysts" expectations and many had seen improved performance in the second quarter. The CAC 40 itself has surged recently above 4,000 from a low of 3,341 last November. The government is convinced that a €20bn tax break it is phasing in for companies to help reduce high labour costs will help boost a turnround. Figures from Eurostat, the EU's statistical body, show France's labour costs fell 2 per cent in the first quarter. But, for all its rhetoric about the need to prioritise growth above austerity, the government's commitment to meet EU-designated budget deficit targets is putting a drag on the recovery, especially as to date the vast majority of savings have come from tax increases. The reduction in the structural deficit this year will be close to 2 per cent of gross domestic product, with a further 1 per cent cut due next year. "You cannot have a strong rebound when the consolidation of the fiscal account is as big as the government is doing," says Mr Montagné. Short of an unexpectedly big resurgence in the eurozone, a return to annual growth of 1.5 per cent, the level needed to bring down unemployment, therefore looks some way off. Despite this harsh reality, President François Hollande has promised to "invert the curve" of unemployment by the end of this year. But he has dropped any pretence that it will happen organically: instead, the president has launched a series of initiatives to create tens of thousands of state-sponsored jobs and training schemes. He has also shrunk his summer holiday to a few days next week in a bid to show a sceptical public that he is not relaxing in the struggle to turn the economy around.