INSEE has just published its first estimation of the growth rate of the French economy during the 1st quarter. The result has been very disappointing. When the last forecasts were based on a GDP increase by 0.2% or 0.3%, production has fallen by 0.1%. It is the first diminution occurred during the last four years. It is obviously symbolic since the accuracy of the figures is not enough to talk about a real drop or even of a recession. But it constitutes a failure for the government which has considered a growth comeback as a priority through an economic policy focused on favoring enterprises competitiveness. So it is not surprising that it makes responsible for this situation social actions which occurred since November against the pension system reform, an explanation which has been largely taken up by commentators. But what is the real truth?
The analysis of the published figures seriously allows to having doubts about it. Household consumption doesn’t seem to have been affected. It increased by 0.2%, versus 0.4 and 0.3% during the two previous quarters. It is all the same this item which would have been the most affected, families having problems to go shopping, to go to restaurants or to visit their friends for New Year festivities. Medias yet insisted about perturbations generated by strikes in transportation and the fall of shop receipts at the end of the year and also about the wage losses of workers on strike. It doesn’t seem that have had the expected consequences. To the opposite, enterprises investments have significantly slowed: +0.3% against an increase, as an average, by above 1% since the beginning of the year. But there also, to put this sharp slowing on the back of strikes has no credibility when we know the decision process inside enterprises. Generally, especially regarding big projects, decisions are the result of a long process. The investment slowing must have been decided in September or before and has no relation with the deterioration of the social climate.
The analysis is the same regarding household and local authority investments. The fall of housing starts, which constitute the main part of household investment has started as soon as at the end of 2018, despite the persistence of very low interest rates. Regarding the stagnation of the investments of local authorities, it is traditional just before municipal elections. It is then decided a freeze of new projects to avoid to causing discontent among the voters, who could be affected by the public works, as in Paris for example.
Another disappointment, without any relation with the social unrest, the contribution of foreign trade on growth has been nil, which yet constitutes a progress compared to the three previous quarters when it had been negative by, as an average, 0.2%. It could always be possible to put forward the deterioration of the international environment, the prospect of Brexit, the poor results of the German economy which was near recession or the trade tensions between the U.S. and China. It remains that the whole economic strategy put in place since 2013 was based on a massive reduction of the charges weighting on enterprises in order to make them recovering their competitiveness which would have permitted to regain market shares both inside and outside French borders. Results have not been more there during this 4th quarter than during the previous ones.
At last, the most important factor in the disappointing achievement of the French economy during the 4th quarter was the destocking movement which has contributed in a negative manner by 0.4% to the total result. The cause is double. There are probably important deliveries of Airbus planes and ship at the end of the year. Their value has been included in the total amount of the industrial production, which has been artificially increased. There is also a downward trend which has been continuous since the second quarter of the year, of enterprises anticipations regarding their sales prospects. French economy growth had been boosted, especially at the beginning of the year, by these anticipations but the adjustment had to be accomplished in the companies at the end of the fiscal year. Production trends during 2019 will harm the accounts in 2020 because the acquired growth will be very low and it is highly likely that the government will have to proceed to a downward revision of its forecasts. It is also likely that it will again put forward the social crisis which hurts the country to relieve of its responsibilities in what constitutes a failure and not to call into question the reasoning which underlies its economic strategy.
The only positive signal is about employment but the interpretation which is made is incomplete. The fall of the number of jobseekers during the 4th quarter in Metropolitan France which has just been published, i.e. 56 000 and, as a total for the full 2019 year 107 000 is of course a good news but it results more from a change inside the job market than from the beginning of a virtuous circle able to feed consumption, investment and, at the end, growth. It also remains that with 3.3 million unemployed, France is far from having recovered a satisfying level and quality of employment. So, if it had been the case economic results for the 2019 year would have been much better. Jobs creations are also on a strong rise but they are concentrated on short period working contracts. That does not provide to employees with enough confidence in the future to consume or to invest in buying a home or making isolation works for instance. The nature of these jobs is also connected to the changes of the society with for instance the multiplication of security agents or home deliveries due to Internet shopping, from books to daily products including meals. These deep changes have been sustained if not generated by the adjustments of the labor code which, under the excuse to give enterprises a larger flexibility have lead to an unprecedented development of precariousness and to a stagnation of real wages, which are also few favorable to growth.
At the end, the strikes have not been the cause of the strong slowing of the French economy and of its disappointing results. The most worrying is that the 4th quarter numbers are expressing the start of a lasting stagnation trend, in total contradiction with the objectives and, especially, with the official message and that will not help to reduce public deficits.
To make its adversaries liable for the failing of a policy is not quite new by itself. It is even an unwritten law in politics. But when the use of this rule results from the denial, from the refusal to understand that the adopted policy cannot give the expected results, it risks leading the country to a critical situation which then leads toward the populist temptation or extremes political solutions. To put the responsibility of the failure of these policies to social movements is to confuse the causes and the consequences because these social movements obviously result from the failure of the followed policies.