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Alain Boublil Blog


2nd Quarter French growth: -0.1%

INSEE has, once more, revised downward 2nd quarter French growth. It has been negative: -0.1%. France didn’t have a reduction of its GDP during one quarter since 2013. So it is difficult to share the optimism of those who consider that “it is going better”. Despite a favorable international environment, a weak oil price, interest rates at their historic low and substantial fiscal incentives for business, French economy is not rebounding. And the figures, published by INSEE even include evaluations difficult to understand since the contribution of foreign trade to growth would be positive for the first time since a year thanks to an increase, in real terms, of our exports. But it s surprising because Customs statistics, for the previous two quarters, record a significant fall (-1% and-0.5%) of their value. This would suppose that our companies have been confronted to a fall of the price of their exports, which is difficult to imagine. Anyway, the worsening of our foreign trade excluding energy, during the last two years shows that the devaluation of the euro and the pressure on wages didn’t contribute to give back to our enterprises the competitiveness they would have lost. Industrial production, which fell during the last three months and which has not regained the 2010 level, correctly reflects this situation.

Household consumption and investment have weakened during the 2nd quarter and their saving rate, which is logic, is at a peak: 14.8%. Their financial saving rate has also reached a  high level: 5.8%, despite very low interest rates on deposits and even the threat of negative ones. Life insurance receipts for instance have represented 16 billion euro since the beginning of the year and the total assets have surpassed 1600 billion. And funds collected by savings bank are also on the rise. House building rebound, observed for nine months is mainly due to social constructions which is positive but insufficient. And the recovery of the real estate market, after a three years fall, concerns past constructions and has no impact on the economic activity. Regarding enterprises, their margins in 2016 are stable at a high level, near 32% and their self-financing ratio has reached summits with, as an average, more than 90%. Fiscal gifts they got have been used in priority to reduce their indebtedness and to distribute dividends instead of investing or hiring people. Non banking groups listed in the CAC 40 index war chest has reached, at the end of the 2nd quarter 25 billion euro. These behaviors reflect the lack of trust in the future of economic agents and their skepticism about optimistic talks.

They invalidate the economic strategy followed by France since 2013. To pursue, in parallel, two contradictory targets, the diminution of public deficit and the reduction of the taxes levied on business, has produced an unprecedented fiscal shock on households at a time when wages and pensions were practically frozen. Income taxes receipts have increased from 60 to 73 billion euro between 2012 and 2016, a rise which comes atop of the increase on energy consumption taxes (more than 3 billion) and an increase of local taxes. The official presentation, which explains that the initial shock has been wiped off, is contradicted by Bercy published statistics. It is the anxiety about an uncertain future and the threat of a general fall of their available revenues which has encouraged a general move toward hoarding of money and made impossible to come back to a strong and durable growth, the only one able to have a significant impact on unemployment. The expected virtuous circle coming from a recovered competitiveness became a stagnation and unemployment vicious circle. Even the bet regarding the competitiveness improvement due to fiscal incentives put in place in 2013 has been lost since foreign trade deficit excluding energy, has increased for the last three years.

The analysis of the employment figures show, at last, that the strong degradation registered between 2012 and the beginning of 2016 has been, until now, stopped, but that this phenomenon is mainly the consequence of precarious and part-time jobs. These are not likely to create the necessary real trust in the future to make enterprises and households behaviors to change. And it is definitely not in increasing workforce precariousness and in reducing employees protection that these behaviors will change and that will encourage household to consume and to invest. Regarding businesses, without clients, why should they create jobs?

Economic issues will be at the center of the debate during the next French presidential elections and the track record of the policy followed since 2012 will be difficult to justify. Angela Merkel policy, in Germany, is frequently presented as an example in France and is used as a benchmark. But, at any local election, the Chancellor suffers heavy defeats, as in Berlin recently. So, it is difficult to believe that the French, facing the economic achievements of the outgoing president, will be more indulgent than the German voters.     


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