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AB 2000 studies

Alain Boublil Blog

 

french economy : the disappointment

The publication of the revised numbers of the French economy during the 2021 1st quarter has received few comments so the impact of the sanitary crisis makes analysis difficult. Instead of a very thin growth published in the first estimation (+0.1%), INSEE announces a GDP fall by 0.4%. The perturbations on the economic agents behaviors generated by the measures decided by the government or by the anticipations regarding the covid-19 pandemic next steps are difficult to evaluate with accuracy. But the revision to a lower level nevertheless put as evidences the country difficulties to prepare its crisis exit. Inside the OECD as in the European Union, comparisons are not in France favor.

The GDP level, as in Germany, is inferior by 5% to the level reached at the eve of the crisis, when the OECD average is 2.5%, by large due to rebound of the U.S. economy which has practically recovered its pre-crisis level. In Europe, France is in the average but this one takes into account the very weak achievements of Spain (-7%) and Italy (-9%) whose economies much more depend from international tourism than in other countries.

The potential exit from the crisis will be successful only if the already announced measures and these which will be adopted take into account the French economy real situation as it was at the eve of the pandemic. Now, without any external cause, the 2019 year has been poor with a sudden slowing since the 3rd quarter (+0.2%) followed by a GDP diminution (-0.3%) during the 4th quarter  before the country fell into recession during the 2020 1st quarter (-5.9%) when the pandemic had only hardly started. The 2021 1st quarter figures show that the causes of the weaknesses observed before the crisis have not disappeared.

Despite the huge amounts of money put at their disposal and the very low level of interest rates, corporate investments has not really started again (+0.2% after +1.7% during 2020 4th quarter). In the services sector, offices real estate is even preparing itself to suffer a second crisis. The development of home working has all the chances to remain a lasting phenomenon which will reduce demand for premises. Regarding the tourism and the hospitality and restaurant sectors, it will take much more time to recover a normal activity due to its high dependency to international tourism which will be affected by travel restrictions.

The industry stays waiting when we expect from it to re-localizing in order to guarantee France supplying safety. After a11% fall in 2020, its investments have just increased by 1% during the 1st quarter, despite the measures in favor of the rebound and the amelioration of the international environment. So we must not be surprised if, to the opposite of the objectives put forward for near 10 years on the necessary competitiveness improvement and despite the massive supports granted, the contribution of foreign trade to growth was staying heavily negative (-1,2% in 2020 and already -0.4% during the 2021 1st quarter). The cumulated deficit of the last four quarters is established at 68 billion euro, i.e. 10 billion more than the 2019 trade deficit and that, despite the spectacular fall of oil prices observed during 2020 first half.

The sectorial explanations are not convincing. The crisis has hardly hurt a traditionally exporting activity, aeronautic construction. But, to the opposite, pharmaceutical industry would have taken advantage of it but that has not been the case. Worse, public decisions have occurred having an unfavorable impact, as the closure of the Fessenheim nuclear power plant which has hurt the electricity traditionally exceeding balance. Some months, it has even been in deficit. Despite massive public transfers enterprises have benefited, we note, neither during the crisis, nor at the moment when the recovery is coming, an improvement of French enterprises market shares in the world.  The de-industrialization trend is not reversing itself. It did not start, as it was said, during the Eighties when, to the opposite, have been modernized and restructured essential sectors as the steel and the car industries. The manufactured goods trade balance remained with a surplus until 2003 when the de-localization turnaround occurred.

Data regarding household consumption are not more reassuring. It has stagnated during the 1st quarter after a 5.6% diminution during the previous quarter which shows that it is possible to have in the same time an increase of the trade deficit and a consumption fall. To the opposite, French people have continued to massively save. Their financial saving ratio remained, with 11.6% of the gross available revenue at an exceptionally high level. Before the crisis, it was little fluctuating around 4%. That has represented more than 140 billion euro. Household have not tried to take advantage of the very low interest rate to acquire a home. New houses building remains under 400 000 units per year, despite a small rebound for the last four months but it would be a short-term one because the number of delivered housing permits has diminished by 6.5% during the last 12 months.

Private sector employee number has fallen since the end of 2019 by more than 260 000 units. Unemployment rate remained near 8% in Metropolitan France but this number is misleading because it doesn’t include the hundreds of thousands workers under part-time unemployment regime or all these who, due to the successive confinements have not been able to justify they are looking for a job.

Yet, it is not the deficiency of the money injected by the State into the economy which is responsible of that. Public debt would reach 118% of GDP at the end of the current year, after two years when the cumulated deficits of the State, the public authorities and the Social Security System will have reached more than 18% of the GDP. But these resources have mainly allowed economic agents to go through the crisis, to the opposite of the very optimistic messages about the benefits of the rebound policy.

During that time, CAC index has beaten records. France is not an isolated case and we see the same phenomenon in the world and especially in the U.S. How to explain this paradox? It results both from household behavior and also, which is rarely mentioned, from the level of the inequalities in the related country. Accumulated liquidities did not remain on banking accounts. A non negligible share of them went to invest itself on the stock market when the saved amounts of money were important.

So stock market rise has not only been provoked by corporate results or by the dividends they pay but by the worry of economic agents who decided to save. So, at least partly, they bought shares. Wealth concentration has mechanically increased the volumes of the flows going to the financial markets. Everything happened, during that crisis, as if the high inequalities level had favored the stock market rise which then has contributed to increase inequalities.

So we must not be wrong. CAC 40 increase is not reflecting a trust rebound in the prospects of the French economy and of its companies. These ones are still worrying, not because of the consequences of the pandemic which sooner or later will soften, but because the past economic choices  have not allowed to constitute, notably in the industrial sectors, the production basis which is necessary to guarantee to the country its growth and the level of life increase of its population as also its economic sovereignty.        

      

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