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AB 2000 studies

Alain Boublil Blog

 

The French economy at Emmanuel Macron arrival

It is not any more an issue to know if Emmanuel Macron is François Hollande’s heir and if he must carry the responsibility of the possible mistakes committed in the past, when he comes into function. The political debate has taken place during the presidential campaign and French people have decided. It is necessary now, just before the coming into office of the new president to get a precise analysis of the situation of the French economy and to identify the challenges the country is confronted with.

France did not get out from a long period of quasi stagnation which is the major cause of unemployment uninterrupted rise for ten years, even if this trend started to bend during last year autumn. Growth first estimate for 2017 1st quarter was 0.3%, inferior the eurozone average (0.5%) and to the government initial forecast. That figure is even less favorable than it looks like because it results from the increase of inventories (+0.6%), which was not enough to fully compensate the negative contribution of French foreign trade (-0.7%). Enterprises did start to invest more (+1,3%) but it is not possible to know, at this stage, if it concerns new production capacities or an improvement of existing units or even real estate (+2,5% year on year). Regarding the last twelve months, with a 1.1% growth rate we are lagging behind the eurozone (+1.7%). The growth target inscribed in the finance bill for the current year is 1.5% and it will be difficult to reach it.

Households are still saving save, through an increase of their deposits and their life insurance policies or through the acquisition of their home. They take advantage from low interest rates as do those who have re-negotiated their loans and, thanks to that, have increased significantly their purchasing power. Construction is today the most dynamic sector of the French economy with a 15.5% growth year-on-year of housing starts, which accelerated during the 1st quarter (+18,5%). It prefigures a strong activity in 2017 and 2018. But it will not have the same consequences on the job market due to the growing share taken by detached workers. It is also true for the investments in public works made by local authorities.

On the opposite, industrial production is still stagnant with very dynamic sectors which cannot offset the activity drops in energy, refining and production in some consumer goods. We observed the consequences during the 1st quarter with a brutal degradation of French trade balance. Total deficit during that period reached 20 billion euro. It is higher than the deficit we had when oil prices, which are the main factor of our deficit, was above 120 $ per baril with a euro rate at 1.40$. The whole benefit France took from the fall of its supplying costs, equal to 20 billion euros in a full year, has been lost. It is especially worrying since the chosen economic strategy had, as an objective, through an improvement of enterprises profit margins, to increase their competitiveness. The weak growth along with the deterioration of the trade balance, despite a favorable international environment, must incite to question about the relevance of this economic strategy which did not bring convincing results.

France is confronted to several challenges, to adapt itself to globalization, to reorient Europe and to boost its economy in order to achieve a durable growth. The first one regards less the State than consumers and enterprises practices. We cannot take advantage from globalization which brought to us a large possibility of choices and a better quality of products and  services thanks to competition without taking our own responsibility in including into our buying decisions the fact that our welfare system and our jobs depend from these decisions. Jean Claude Juncker is wrong when he says that French people spend too much. The truth is that they spend too much in favor of imported products, when most of the time they have the possibility to make a different choice but they don’t care. The State has to use its “soft power” to explain this new situation and set an example. We must, at last, give to our expatriates the place they deserve in our national community and stop to qualify them as exiles, for fiscal reason or not.

The behavior and sometimes the strategies of our enterprises must change with more solidarity between clients and suppliers and less costly foreign acquisitions or relocations which impoverish national territory. Our major competitors in Europe have understood that, so we have no reason to refuse to admit these mistakes. The idea consisting in thinking there is a unique cause to our difficulties and a magical remedy consisting in financial transfers, whatever their nature is, to increase their margins, is wrong as the experience of the last five years has proved. It is now time to take appropriate action.

The European challenge cannot be taken up right now because France is not the only country concerned and we will need to wait for the result of German elections, and even Italian ones. But it doesn’t impeach us to work and to think about a modernization of Maastricht criteria which are more than twenty years old and to look for new cooperation fields. The duty of the head of the State and of the majority which will emerge from the coming general election will be to reconcile French people with the European project and to fight against wrong ideas spread by populists. This fundamental debate, which did not occurred during the electoral campaign, affected by the personalization of the political life, will have to be opened and it is one of the most important challenges our political leaders will have to tackle.

The agenda, for the State, is not less essential. It has not to run everything and a major campaign focused on the de-bureaucratization must be launched as the one initiated by Pierre Bérégovoy thirty years ago when he progressively abolished price control, restrictions on credit and foreign exchanges regulations. The end of fiscal instability, the simplification of different regulations, not only regarding working, and a curb in the production of laws and regulations will make everybody’s life easier. The State will have, some time, to take its responsibilities when a company goes through a difficult period with shareholders being defaulting. Private equity funds do exist. The State should adopt that kind of tool, like a “public equity” fund. It did so, once, with Alstom, and again, with success, with Peugeot. France has no reasons to renounce to this kind of intervention since our competitors don’t miss a chance to do it.

The debate will have to be opened about economic policy and the choices in favor of  supply or  demand. What is sure is that the strategy based on “a full supply policy” has failed. A new equilibrium has to be found. The president has shown his interest for economic issues in gathering around him economists having various opinions. He has all the elements to act. It is at that condition that the French economy will restart on a durable trend and will find its place in the new world where we are living.

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