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Good books make false friends!

We have figures, balance sheets, statistics and forecasts for analysis, deciphering and vigilant observers to determine what they really mean.

The leading straight-shooter of the week is economic journalist Pierre-Antoine Delhommais, who entitles his column in Le Point(without batting an eye)“Trompe-l’œil”—“Misleading Growth”. While he acknowledges that purchasing power and growth will increase this year, he immediately downplays this encouraging outlook by explaining that all of it is financed with credit and will only dig the deficit a little deeper. “The government would be wrong to crow about it, first, because France has become a small exporting power, and our growth is fake growth, driven by new government spending, financed with credit which increases the debt, and by totally artificial gains in purchasing power, disconnected from productivity gains, and bestowed by a government in dire straits.” 

Now that is candour.


Indeed, his column echoes straight away the latest growth forecast announced by the French government this week and reported by Le Figaro. “The government now expects growth of 1.4% per year between 2020 and 2022, vs. 1.7% per year twelve months ago. The document, sent to the Brussels Commission every year in mid-April, sets the course for the economic aggregates through the end of the five-year period. The French Ministry for the Economy and Finance now expects growth of 1.4% per year between 2020 and 2022, vs. 1.7% per year twelve months ago.


For 2019, the drop will be just as sharp; the projected increase in GDP was reduced to 1.4%, vs. 1.9% a year ago.


The result of this net economic downturn, shared by all of Europe, can be seen in other macroeconomic indicators.” And, the newspaper adds, “the deficit, which should have been reduced to -0.3% of GDP in 2022, is forecast to be -1.2% over the period, or a projected decline of 1.6 points since the end of 2017, vs. 3.1 targeted a year ago. The same goes for the public debt ratio, which also continues to slide, albeit at a slower pace, projected at 96.8% in 2022, vs. 89.2% a year ago for the same timeframe. At this stage, debt is therefore scheduled to decline only 1.6 points over the five year period, vs. 5 points promised in 2017 during Emmanuel Macron’s campaign.


As for the public spending ratio, it will decline only 3 points, to 52.1% in 2022, vs. a reduction of 4 points for the period in the April 2018 Stability Programme.


At the end of the day, the only improvement the government is making in the forecast sent to Brussels last year is for compulsory social contributions, now targeted at 43.8% at the end of 2022, vs. 44.3% a year ago. If the government achieves that objective, the decline will be 1.4 points over the five years, vs. 1 point promised by the President in 2017.”  What’s more, this trajectory for the French public accounts does not take account of Presidential announcements, expected during April at the conclusion of the “big debate” initiated since the start of the year, which we know will contain a few additional tax giveaways that France clearly can no longer afford.



Meanwhile, another voice is disturbing the obvious serenity of the political decision-makers. That is François Écalle, a public finance specialist, now on standby from the Court of Auditors. He believes that “debt will approach 100% of GDP in 2022”. To him, it only makes sense for the government to revise its projections downward, in view of the deterioration of the international economic environment. And he continues, not without irony, “it could have been a bit more pessimistic. One thing surprises me: M. Macron envisions rising inflation in 2022, which could reach 1.8%, without a resumption of growth. Obviously, the increase in prices would then come closer to the BCE’s target inflation rate (2%). But that would also somewhat embellish the public finance profile, first of all by inflating GDP, which automatically brings the debt level down. In addition, that would improve forecasted receipts, while the increase in expenditures would lag inflation, in this case coming in 2023, that is, beyond the period of this forecast.”



Behind this statistical edifice, there is real trepidation shared by all the analysts about the vulnerability of  countries and central banks to a crisis similar to the one in 2008. The economist Nicolas Baverez says the same thing in Le Point: “Monetary institutions have reached their capacity. It is now up to the politicians to assume their responsibilities.” That is because the central banks now find themselves precluded from rebuilding their room for manoeuvre to deal with a new crisis. Remember that the amount of public and private debt is now 230% of worldwide GDP, including $67,000 billion of sovereign debt, creating a major risk of new financial shocks.”


It therefore seems more important than ever to redo our books.

Christian Moguérou

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