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  • 2017/06/01
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So what's next

Commentators are obviously having a field day. It’s tough to innovate in France, especially amid a fresh round of political scandals. The forthcoming budgeting exercise will be complicated: the figures inherited from the previous administration are starting to trickle in, and all is not rosy in the land of Emmanuel Macron. That’s not a personal opinion, either. A recent report from the state audit office, quoted this week in the business daily Les Echos, said the policies pursued by the outgoing administration in recent months had “increased uncertainty over the fiscal path in both the short and the medium term”. The report, presented to the senate finance committee, goes on: “Management operations in 2016 have undermined the ability of the state to meet its budget commitments in 2017 and subsequent years, while financial sustainability continues to worsen”. France’s new president has thus been put on notice that the deficit is unlikely to fall back below the targeted 3% of GDP. This is due to a lack of budget savings, even though the low interest rate environment enabled François Hollande’s administration to trim the debt burden by €3 billion.

Be that as it may, the forecasts are upbeat. First-quarter GDP growth has been revised upwards to 0.4% on the back of investment, and the 1.5% annual target now seems within reach.

The cyclical indicators are positive and slightly better than usual, a situation that Mr Macron will doubtless benefit from. Investment has definitely picked up, most probably temporarily, but the experts are nonetheless delighted. Denis Ferrand, managing director of the macroeconomic research institute COE-Rexecode, has put the risk into perspective, saying that “Financial conditions are favourable, with low interest rates, and companies’ cash positions are very positive, so investment should be brisk”. This would restore the resources that France had lost. Also in Les Echos, the economist Eric Heyer wrote: “Growth is robust, with GDP expanding at a quarterly rate of some 0.4% - 0.5% over the past six months. Job creation over the past twelve months has been running at around 200,000, and households and firms are investing. This heralds a recovery, and one that seems firmer than previous upturns.

What constitutes a recovery is not only the numbers but also the characteristics. At present, growth is being driven by investment and job creation, not just consumption. This year France will probably see growth of 1.5%. This may be tenuous, but a virtuous circle is clearly taking shape”. That’s the kind of thing we have not heard for quite some time. What’s going on? Has France finally regained its confidence? Perhaps it has. So what’s next?

Christian Moguérou

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

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