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AB 2000 studies

Alain Boublil Blog

 

To break with a policy causing anxiety

The small review of the French growth rate for the second quarter, which would have reached 0.3% instead of 0.2% in its first estimation, as the increase of household consumption of goods in July (+0.4%) after the fall in June (-0.2%) must not give illusions. The levels are still very low and insufficient to assert that France has regained a satisfying economic trend. In looking more closely at these numbers, it is possible to think it is even the opposite. Contrast is striking between the improvement of the financial situation of both household and enterprises and the deterioration of the financial situation of the State and the public entities. But that has not generated a rebound neither on the demand side nor on the supply side.

Regarding household, fluctuations are mainly caused by the evolution of energy consumption (20% of  goods total consumption) which depends on weathers hazards. The purchasing power increase which has resulted at the beginning of the year from the measures decided after the social crisis has generated an equivalent increase of financial savings. High receipts of Livret A and Life-insurance confirm the point. On one year, financial saving rate increased from 4 to 5% of gross available income. And the spectacular fall of long term interest rates has not produced the increase of new home buildings. Housing starts are continuously falling since the end of 2017 and authorizations granted this year do not let us forecast a rebound, on the contrary. Household indebtedness increase has mainly been oriented to finance acquisitions of old houses and apartments whose prices have dramatically increased for two years. Household have preferred to hoard, when they could do it, the purchasing power supplement they got and the consequence on growth and employment has been very limited.

Regarding enterprises, margin rate has overpassed 34%, against 31% a year ago when investment rate remained, with 24%, stable compared to 2018.The consequence is that the self-financing rate has been over 100%. It was already very high in 2018 with 94%. The has not prevented enterprises to increase their borrowings but it was mainly to achieve financial operations (acquisitions, stocks buybacks) or, more simply to have an abundant liquidity to cope with new opportunities. The international climate (Brexit, China-U.S. trade war and tensions in the Middle-East) could justify such a careful attitude from companies which could be affected. But nothing can justify the investment lack of vitality and the low research and development efforts in promising sectors when the State has offered substantial financial incentives.        

The result for the State and public administrations is an aggravation of the budget deficit, rising to 3.5% of GDP against 2.5% in 2018. The given explanation, the impact of the cost during the same year of Enterprise Competitiveness Tax Credit and of the reduction of social charges which will take the place of the tax credit in the future, is not convincing. To the opposite, the competitiveness increase is an illusion since the contribution of foreign exchanges to the growth has been nil until now in 2019. Trade balance figures are also largely influenced by inventories variations, mainly the result of the fluctuations inside the supply chain of Airbus and the rhythm of their deliveries. At the end, for reasons it will be necessary to clarify someday, the State is doing its best efforts to slow the impact of the interest rate fall on the debt duty. The issuance, August 1st of bonds carrying 4.75% on a 15 years maturity has brought to its treasury an issuance premium of 1.65 billion euro but will increase during 15 years the burden of the debt it will have to pay the 4.75% coupon to these bonds subscribers.

So why, despite all these efforts, growth has stayed at such a low level? To have a rebound, it would be necessary a consensus appears between economic agents, household as enterprises, to include in their behaviors a positive vision of the future. But the State action and the message delivered by its leaders is causing anxiety and incites these economic agents to cut back their expenditures as their investments. There is first the debt threat and the consequences of an eventual interest rates rebound, forecasted for months and even for years by Bercy and even by the Accounting Court and which has zero chance to occur in the near future, if we take into account the recent declaration of the coming president of the ECB, Christine Lagarde. But even, if we suppose it occurs, consequences would be very long to be perceived because French public debt carries fixed interest rates and the rate rise would have impact, and with a one year delay, only on new issuances offered to reimburse bonds coming at maturity and also to the condition that these bonds carry rates above these coming at maturity. It is not for tomorrow and even if that was supposed to come one day, that would mean that growth has rebounded and that State receipts would be then the first beneficiaries.

Another sign of this culture causing anxiety which installed itself in France is that all structural measures to improve the economic results for seven years are based on the principle that it is necessary to reduce social protections or the acquired rights of the huge majority of employees, pensioners and families. The job market reform has generated an explosion of the very short-term contracts. The current discussions about the pension system reform are increasing worries. The growing jeopardizing of employment will reduce pension rights the increase of the activity duration will not be able to compensate due to the lack of jobs offered to seniors, phenomenon which will increase in the future. To postpone by a year decisions about pension reforms will increase again the uncertainness period and the unavoidable worry it is causing.

How to be surprised then, that, in an international context already full of risks, which are highly overvalued by the media representation, economic agents are anxious, are less consuming and investing and keep financial reserves unusually abundant to protect themselves again the worst to come, whatever it comes from outside or from the consequences for everyone of the public action?

It was largely said in Jackson Hole and elsewhere that monetary policy must be the purpose of a reexamination because it had reached its limits. The other economic policy tool, the budget, through increase expenses or tax cuts would be restrained by the high level of deficit and indebtedness. But it still remains a tool for the State and its leaders to reverse this depressive trend: to break with the systematically and causing anxiety message it addresses to people. Professional unions have also a role to play. Instead of permanently denouncing welfare system and the working costs, which is a real insult to employees and asking always more to the State without any counterpart, it would be better to find a better sharing of the wealth enterprises create. Through the trust it would have been restored by that, a whole set of freezing would disappear. Companies would improve their achievements in a more durable and sound way than through disguised subventions and without provoking with their attitude social revolts as these France has just made the painful experience.

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