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Boston, MA -- (SBWire) -- 03/12/2013 --Core Views

France's economy is showing signs of a sharp economic slowdown in light of the deteriorating global macroeconomic backdrop, and while a return to recessionary conditions remains outside our core view for now, we note that the French economy and, in particular the domestic banking sector, are highly susceptible to a further intensification of the eurozone sovereign debt crisis.

We expect pressure to mount on the government to engage in more concerted fiscal consolidation in 2013, particularly given the minimal fiscal adjustment undertaken in 2012. While France has thus far not fallen prey to the bond vigilantes as has happened to the peripheral countries of the eurozone, the country has one of the largest public sector debt piles in Europe and remains susceptible to contagion effects.

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Major Forecast Changes

We have revised down our 2013 real GDP growth forecast for France to 0.4%, from a previous forecast of 0.6% on the back of our expectations for a weaker household segment and slowing external demand.

Key Risks To Outlook

Downside Risks To Fiscal Forecast: The possibility of a further intensification of the eurozone sovereign debt crisis and the potential need for state-led capital injections in the domestic banking sector keep the risks to our fiscal deficits over the medium term firmly to the downside.

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