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Current accounts, BREXIT, negotiations: balance is the keyword


Understanding exactly what is disrupting the economic world in early 2019 calls for considerable patience and attention. Some people can make neither heads nor tails of the situation, while others are unable to stop talking about it, with even the presidents of major powers tweeting at the drop of a hat. And the prevalent tone is about pulling no punches and telling it like it is. 

Les Echos published an article this morning on France’s trade deficit, which came out at €59.9 billion in 2018, the energy bill accounting for two-thirds of the total. “This underperformance does not result from a sharp drop in the sales of French products abroad. Some sectors are actually doing well in this respect, including the automotive industry (with exports up 7.9% to €35.5 billion), chemicals, perfumes and cosmetics (up 3.1% to €58.3 billion), agri-food (up 2% to €62.4 billion) and luxury goods (up 6.3% to €51.3 billion). Aerospace exports are also trending positively (up 2.7% to €57.2 billion), ‘thanks to another record year for Airbus (800 deliveries)’. The deterioration can be attributed primarily to the oil bill, which came to €46 billion last year and now accounts for ‘nearly two-thirds of our trade deficit,’ says the office of the Secretary of State for Foreign Affairs, Jean-Baptiste Lemoyne.” At the same time, France’s share in world trade is stabilising. “Despite a reduction in the cost of labour resulting from the CICE competitiveness tax credit – ‘Since late 2013, France’s cost-competitiveness has improved by over 4% compared with other OECD countries,’ says the Minister of Foreign Affairs – France’s share of world trade has merely stabilised in recent years, at 3.1%. […] French products are still too expensive and positioned in the mid-range, making it tough for them to compete with high value-added products as well as products from countries with low labour costs. Consequently, France is unable to increase its market share internationally. The figures published today also show that the number of exporting businesses rose slightly in 2018 to a little over 125,000 (compared with 124,100 in 2017). This modest increase is good news but reflects the persistent difficulty for French SMEs to achieve growth and thus move into international markets.”

Le Figaro also writes that, according to a report published on Monday, it is European companies that are best positioned to replace Chinese exporters in the United States and US exporters in China. “Economists and international organisations such as the International Monetary Fund have been saying for a year now that the trade war between the United States and China is threatening world growth. But the rise in customs tariffs initiated by Washington and, in retaliation, by Beijing, is not to everyone’s detriment, according to the United Nations Conference on Trade and Development (UNCTAD). And Europe stands as the main beneficiary. Of the $250 billion in Chinese exports to the United States subject to punitive taxes, a full 82% would be replaced by exports from other countries. The share would be roughly similar (85%) for US exports to China. European exporters would pick up $50 billion of the Chinese products currently sold in the United States and $20 billion of the US products sold in China, for a total $70 billion. […] This simulation is based on the assumption of an increase, to 25%, in additional US taxes (compared with 10% currently), which will be introduced by Donald Trump on March 1 only in the event of a failure in the negotiations under way between Washington and Beijing.” Once again, then, everything is a question of balance.

To close, a succinct comment made on Wednesday by the President of the European Council, Donald Tusk, has sparked major debate in Europe. According to Les Echos, “The President […] fully expressed his exasperation with the negotiations over the ‘backstop’ preventing the return of a physical border in Ireland. The comment, unleashed after yet another Brexit meeting, reflects just how irritated European leaders are with the length of the negotiations with the UK.” In his own words, Donald Tusk wondered “what that special place in hell looks like for those who promoted  Brexit without even a sketch of a plan how to carry it out safely”.

Nuance is no longer on the cards this week. The key thing now is balance.

Christian Moguérou

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