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French economic growth sputters to halt

France's economic engine ground to a halt in the spring as French consumers slashed their spending and exports dried up, reinforcing concerns about the global economy.
/ Source: The Associated Press

France's economic engine ground to a halt in the spring as French consumers slashed their spending and exports dried up, reinforcing concerns that the global economy is facing rising recessionary threats.

The worse than expected French figures come as policymakers scramble to soothe investor nerves that the country could be the next major economy to lose its coveted triple-A credit rating.

A move Friday by stock market regulators in France and elsewhere across Europe to ban a form of stock market speculation that some are blaming for the turbulent trading in recent days looked to be having some impact, but economists stressed that any rebound was very fragile.

French bank shares were flat or slightly lower in early trading in Paris. Over the past couple of days, stocks like Societe Generale and BNP Paribas have been hugely volatile amid rumors of their financial health.

The European Union's markets supervisor, the ESMA, announced the short selling ban late Thursday night after boosting surveillance of stormy markets earlier in the day. In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share. The practice has been blamed for contributing to market volatility.

Regulators in France, Italy, Spain and Belgium are each implementing the bans, whose details vary from country to country.

The French market regulator, the AMF, said that it is banning for 15 days net short-selling on 11 stocks, including those of banks Societe Generale, BNP Paribas and Credit Agricole and leading insurers.

Belgium's market authority announced a ban on short-selling on financial shares such as leading banks and insurers starting Friday. Belgium had already banned naked short selling, basically a bet on a decline in the price of a share without borrowing the share, since August 2008.

Several countries banned short selling during the financial crisis of 2008 to try to tame volatility. But some experts said the bans actually contributed to a feeling of uncertainty.

News that French economic growth sputtered to a halt in the second quarter will likely raise concerns that the European economy is being impacted by the debt crisis that has afflicted a number of countries and has fueled the turmoil in the markets.

The French economy posted zero growth in the second quarter, national statistics agency INSEE said. Government economists had forecast growth of around 0.2 percent in the period.

Growth in the first quarter was nearly 1 percent, but a sudden reversal in consumer spending and stagnation by the country's exporters has caused the seizing up of the eurozone's second biggest economy.

France's finance minister took to the airwaves again Friday morning in a bid to put a positive spin on the weak second-quarter numbers.

"It's not a surprise that the second quarter is worse than the first, we anticipated this," Francois Baroin said in an interview on French radio station RTL. He said the government is sticking with its deficit reduction targets despite the lower growth.

The French central bank said this week that the economy will likely grow only 0.2 percent in the third quarter. The bank's monthly industrial survey showed corporate order books and factory utilization rates falling for the second month in a row in July.