INSEE, the French statistical body, publishes, at the end of this week, its first estimation of the 3rd quarter growth rate of the French economy, the word, growth becoming, year after year, more and more unsuitable. The Minister of economic Affairs, Emmanuel Macron, has evocated a more appropriate concept: lethargy, which is closer to reality. Industrial production and foreign trade numbers, as those of household consumption and fiscal receives are already known. Nothing let us hope a return to a normal growth rate, i. e. above 2%, consistent with long term trends and able to reverse unemployment curb.
Figures of the last four quarters are edifying: 0,3%, 0,1%, 0,7% and 0%. The jump, during 2015 1st quarter has not been confirmed in the 2nd quarter because it was essentially the result of the constitution of inventories by the corporate sector, which used them during the following one when it was confronted to household consumption stop. Some would be satisfied with a 1% growth rate in 2015, consistent with government objectives. The lower these objectives are, the easier they are to be reached. But this satisfaction is not justified since this mediocre achievement does not correspond neither to the France economic potential, nor to our fellow citizens aspirations, notably regarding employment.
Yet, the state didn’t go in regarding means. And external environment, raw material prices, interest rates and even, but it is a controversial issue, the level of the euro, was rather favorable. The Committee, in charge of assessing the use of the fiscal incentive put in place by the government (CICE) and which is the cornerstone of its policy to stimulate the economy, has evaluated the size, and its impact on public finances, of these incentives in favor of the corporate sector : 11,2 billions euros of tax credits resulting of wages paid in 2013 and 18,2 billions euros of tax credits in 2014. The rise of the cost results of the increase from 4 to 6% of the portion of the wages being the basis of the fiscal benefit. These benefits concern wages inferiors to 2,5 Minimum Wage (SMIC). We can already see the impact of these measures on corporate tax receipts which registered, for the first nine months of 2015, a 22% fall from the previous year.
These transfers in favor of the corporate sector unfortunately did not result in a significant rise of investment, which will not overpass by more than 1% the level reached last year, but generated a jump of its margins and its self-financing rate. We could add that, for listed companies, there was an increase of dividend distributions and of shares buybacks on the market. We observe, in these circumstances, a limit to supply side policies: in the absence of demand, these transfers go directly to increase cash-flows. The famous “Schmidt theorem”, named after the German chancellor who just died, is not any more relevant: yesterday profits don’t produce today investments and tomorrow jobs.
At least, we should have hoped that the favorable international context, with the fall of raw material prices which reduces production costs and increases household purchasing power, along with the reduction of the euro-dollar parity, would have permitted to our foreign exchanges to produce a positive impact on French growth. That was its purpose through an increase of the competitiveness of our enterprises. It didn’t occur until now. The contribution of the trade balance to growth has been negative in 2014 (0,5%), and is near zero since the beginning of the year. Figures published by Customs for the third quarter at the beginning of this week, do not incline to optimism. If the trade deficit is shrinking for a year, it is only due to the reduction of the energy bill, and even, it has been partially neutralized by a degradation of the manufactured products trade balance, which is a height regarding efforts granted in favor of enterprises, and by the fall of the euro which made imports paid in dollar, as oil, more costly.
The case of the car industry is revealing. People rightly cheered when new car registrations jumped since the beginning of the year, a signal of a return of consumer confidence, good for growth. But, when you look more closely, and the published figures are devastating, you see that this rebound generated an aggravation of the trade deficit of the sector. During the nine first months of the year, it already hit 4,4 billions euros, the level reached for the entire year both in 2013 and 2014. By countries, imports grew from Morocco and Turkey (thank you Renault), from England (thank you Nissan) and from Slovakia (thank you Peugeot). It is the delocalization strategies of the companies which increased deficits and penalized employment.
The recovery of household consumption since the beginning of the year, and which should be confirmed during the 3rd quarter, shouldn’t raise hopes: it had and it will have, in the future if it continues, as a consequence, a degradation of the trade balance and will not necessarily generate a rebound of the production. The positive impact of the reduction of the cost of the energy bill has also been partly neutralized by the fall of the euro. The consequences on French growth of this special situation (euro, oil, interest rates), will be modest. In this context, economic agents carefulness, both corporate sector which will favor profit increases to the detriment of investments, and household who will increase their savings, is incompatible with the return of a growth of the French economy, worthy of the name. So, lethargy will continue.
Household financial saving rate will continue to hit records high, with more than 6% of disposal income, and in spite of fixed income remuneration near zero and a punitive tax system for shareholders. Regarding business, nothing permits to be sure that in the coming months, they will change their strategies. On the world scene, no acceleration is in sight. And without clients, no recruitments are expected.
The skepticism regarding the respect by France of its deficit reduction commitments is not unjustified. The instrument (the ratio between GDP and public deficit) relies on three numbers: growth and the reduction of the difference between expenditures and fiscal receipts. But the policy followed during these last two years has consisted in a diminution of receipts (through the CICE) faster than the reduction of the expenses (the “savings”) in the hope that the third term of the equation, the growth, would permit to close the gap. We have to recognize that, until now, that did not happen and that the government will be confronted, in 2016, to painful bills. Without an inflexion of its economic policy, France growth seems to be in a deadlock.
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