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  • 2017/06/22
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Growth: France’s long-running story

Is growth back? Is it flat? Will it be stronger than expected? Are the official forecasts still reliable? Is the government banking on a particular number whereas the prime minister is already saying that the 2017 budget deficit will likely exceed the previous government’s projections? There are plenty of questions to be answered as the new administration gets down to work. Let’s face it: the figures posted year after year are never borne out by the facts. It is true that economists are not soothsayers, but it would be nice to be able to believe in a reasonable and possible outturns.

So let’s be pragmatic and listen to what we’re being told. GDP is expected to grow by 1.6% this year, according to an economic assessment published on Tuesday by INSEE, France’s statistics and economic forecasting institute. This would allow unemployment to recede a little further. What’s more, Emmanuel Macron – like his predecessor – has promised to invert the joblessness curve and is targeting a fall in the unemployment rate to 7% by the end of his five-year term.

So, back to growth, which is what will ultimately bring down unemployment. It seems as if President Macron can count his lucky stars because growth is running at 1.6% and finally returning to more promising levels. This is the best result since 2011, when the economy grew by 2.1%. But where is the impetus coming from? The daily Le Monde has ventured an initial explanation. It starts by quoting Dorian Roucher, head of INSEE’s Short-Term Outlook Division: “The French economy is posting solid growth, which is unlikely to falter between now and the end of the year”. The article continues: “These optimistic forecasts are based largely on robust household investment – in other words, housing expenditure – which is expected to jump by 3.7%, a level not seen since 2006. This should revive the fortunes of the construction industry, which has been flailing since the crisis, on a rise in new-home sales and building permits.”

The monthly L’Usine Nouvelle provides additional information that helps explain France’s economic upturn. First, political uncertainty has faded. Second, the global context is firmer and growth is picking up in every economic zone, not only Europe and the US but also China. That should boost world trade. Lastly, business investment is robust, with a 2.9% rise in the first quarter

Companies have rebuilt their margins, financing conditions are still good, and demand is back. Construction has rallied after two bleak years and inflation is levelling off. The only drawback is France’s competitiveness, which is still weak. This will be the focus of the proposals put forward by the government, which intends to tackle the problem head-on. The growth issue was once a long-running story in France. Now that story may finally be reaching an end.

Christian Moguérou

Sources : Le Figaro Economie, Harvard Business Review, Financial Times, Le Monde, Le Point, Les Echos…

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