Government satisfaction expressed during last council of Ministers at the Elysée palace this week, after the publication of the first estimation of 4th quarter (+0.2%) and last year (+1,1%) growth was not justified. Official comments which were accompanying it gave a too favorable presentation of the reality. They were not convincing since they depend on the basis of the comparison. The result is higher than in 2014 (+0.2%) but it was not very difficult. On the opposite, our major competitors did much better, the U.S. and the U.K. both were around 2.5% and Germany reached 1.7%. During the twenty years which followed unification, France enjoyed a higher growth rate than its neighbor. It’s over. Our country occupied a good position among euro zone. It’s also over. It is not needless to try to understand why.

During the last four years, France suffered an unprecedented economic stagnation: 0.2% in 2012, 0.7% in 2013, again 0.2% in 2014 and 1.1% last year. This provisional figure must be taken with caution since it partly results from an inventory increase which will weight on 2016 production. In four years, average French growth was near 0.5%. In fact, it has stagnated. This situation explains why unemployment rose so much, in despite of an international environment which would and should have mechanically generated better results. Neither imported raw materials prices fall, nor euro and interest rates reductions have created a real rebound of French economy, at the difference of most of other developed countries.

2016 prospect is not better since the increase of the activity last year was concentrated during the first quarter (+0.7%) and the economy is since in a quasi stagnation situation, unlike government comments. And if household consumption increased during the fourth quarter, it profited mainly to car imports and fuel oil, families taking advantage of oil price fall and anticipating their supply for the heating season. For the second year, external trade contribution to growth was negative. Excluding energy bill, trade deficit increased in 2015. Economic policy, through the increase of company margins and the fall of the euro, had the opposite as an objective. In fact, competitiveness of French companies has not improved, if we measure it through foreign trade.

These poor results are mainly the consequence of the economic policy which has been followed during these four years and of hypothesis which were wrong, regarding the reactions of economic actors to its decisions. Tax statistics and the evolution of French family wealth are very instructive. Income tax receipts, after reimbursements, increased between 2011 and 2015 by 20billions. Cumulated tax increases during these four years reached 68billions. VAT rose, during that period, by 10billions with a cumulated amount of 22billions. So the total of the increase of tax bill for households was 88billions. During the same period, purchasing power rose very slowly, social transfers, notably family allocations, were reduced or included in the tax basis. It was also decided to pay pensions on a monthly basis instead of an advance quarterly payment, which put pressure on retired people.

A vicious circle started during the second half of 2012 with consumption stagnation, resulting from the increase of fiscal pressure. This stagnation weighted on economic activity. Companies stopped hiring and sometimes reduced the number of their employees. Confronted with the rise of unemployment which was the consequence of the stagnation of the activity, households lost confidence and were more and more reluctant to spend or to acquire a home. That generated a crisis in the construction sector, crisis aggravated by the debate surrounding a bill supposed to modernize this activity, but, at the end, which was penalizing homeowners. So those who had the resources chose to save. We see that in the evolution of their wealth. Between 2011 and 2014, which are the last known figures, households increased their net wealth by 270billions. But this increase was concentrated on their financial deposits and assets assets.

The value of their homes fell by 200billions, due to the fall of properties prices, which was not compensated by the construction of new homes. Households debt, mainly composed of mortgages dedicated to new homes or renovations, staid at the same level. But financial assets increased by about 120billions each year thanks to the rise of the stock market and especially to the increase of household financial saving rate which reached a record level during the first half of 2015: 6.4% of their gross available revenue, against 6% in 2014 and 5.8% in 2013. Household reaction to economic stagnation has been an unprecedented move toward building up of capital.

So government put itself in the following paradoxical situation: to rebalance public accounts and improve the competitiveness of companies, it has provoked economic stagnation. As a consequence, household have built an overabundant amount of financial resources compared to the public deficit they were supposed to finance.  

All tax increases, in 2012, have not been decided by the current majority. But the new government amplified them and carried on with this policy until 2015 summer. At that time, the argument was that the government, in the same time, had to reduce public deficits to respect European rules and to give to enterprises financial margins to invest and to hire. It was what was called supply side policy. Unfortunately, the failure is evident for both objectives since economic agents did not react as expected, households building up capital and enterprises waiting for better days. And public accounts did not improve significantly. Deficit was still above 4% in 2014 and by far above 3% in 2015. And unemployment rose dramatically.

France, until now, has not been in a position to take advantage from raw materials prices fall, unlike what happened in 1986 or 1998. Our major companies, some of them having massively delocalized their production with the tacit agreement of the state, like Renault for example, did not take advantage of the fall of the euro to regain market shares. Excluding energy, our trade balance deteriorated in 2015. Last for all, the State did not know or did not decide to pass on, in its debt cost, the massive savings ECB was offering through the durable and substantial reduction of interest rates. It could have offered it the possibility to reach its deficit reduction targets imposed by European rules much faster, or, which could have been better, to reduce the fiscal burden, on households, which has been, for four years, the main obstacle to a significant economic rebound.

It is never too late to recognize its mistakes, but time is short. Failing that, 2016 will not meet expectations, in spite of a situation which is completely independent from adopted economic policy: it is a bissextile year and three public holidays occurred on a Sunday. There will be four more working days than in 2015 and less long weekends…