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French Budget Deficit Narrows in July, Industrial Production Stalls

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New economic data released Friday indicated that France's budget deficit narrowed in July, even as industrial production in June stalled. The French Treasury Agency reported that the budget deficit narrowed in July following an increase in June and the National Institute of Statistics and Economic Studies (INSEE) reported that industrial production remained flat in June.

The French Treasury reported that the French budget deficit narrowed to 56.7 billion euros in July from 69.6 billion euros in June and narrowed to be the smallest deficit in nearly two months. Deficits are rather cyclical, as tax revenues generally spike in the beginning of the year as people pay income taxes, and this can be seen in the deficit data. The French deficit in February fell to a mere 13.4 billion euros from 148.8 billion euros in January.

INSEE also reported that industrial production growth stalled in June as industrial production neither grew nor contracted but remained constant from June. This was better than the downwardly revised 2.1 percent rate of contraction in May from April but missed economist estimates of a 0.4 percent rise. The weak data shows that France has been unable to escape the global economic slowdown that has been plaguing economies for the past few months.

The weak French data followed weak trade data released in China overnight. Also, a survey by the Philadelphia branch of the Federal Reserve showed that economists have ratcheted down U.S. GDP growth expectations for the third quarter of 2012 to 1.6 percent from 2.5 percent at the last survey. The same economists also expect the unemployment rate to finish the quarter at 8.2 percent, higher than the last survey's 8.0 percent expectation.

French shares fell on the news, as the benchmark CAC Index fell 0.61 percent and the euro weakened against the U.S. dollar. French 10-year bond yields fell, however, as investors looked for safe yields. French 10-year yields fell to 2.076 percent from 2.097 percent at the open and after reaching a high of 2.11 percent. 2-year bond yields also fell on the day, from 0.18 percent at the open to 0.161 percent as of writing.

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