France's embattled government hailed signs of accelerating growth today as a rare piece of good news that vindicated its policies of controlling public spending, boosting growth and creating jobs.
State statistics office INSEE raised its 2004 growth forecast to 2.3 per cent from 1.7 per cent .
In a quarterly report, INSEE predicted a surge in investment but no quick fix to high unemployment levels that have landed the government in trouble.
INSEE predicted a 3.1 per cent rise in investment after near stagnation in 2003, a 2.1 per cent increase in consumer spending, and a drop in inflation as long as world oil prices ease a little from their peaks.
The report highlighted that French growth, which spurted an unexpectedly strong 0.8 per cent
in the first three months of the year, received more of a lift from consumer spending than Germany, where the economy was more reliant on exports.
Contrary to warnings by the European Central Bank, INSEE said the "second round effects" of high oil prices in terms of rising production costs and wage demands was limited.
Inflation had risen in France, mostly because of oil and commodity prices, but the worry should not be exaggerated, INSEE said, predicting a drop in French inflation to 2.6 per cent in June from 2.8 in May, and 1.7 per cent by year-end.
But the limited knock-on effect of energy price inflation on wages and production cost "is not likely to trigger an abrupt tightening of monetary policy (interest rate rises) either in the United States or Europe."
INSEE's report said unemployment risked rising in the next few months as more people signed up at job search agencies at the end of the school year before an increase in job creation began to have any impact on the jobless rate.
It predicted an unemployment rate of 9.8 per cent at the end of the year, which is no different to the current rate and bad news for President Jacques Chirac after announcing that jobs would be the government's top priority in 2004.