The French economy has avoided the worst in 2022, thanks to the public expenditures measures which have allowed to supporting enterprises during the covid-19 pandemic and household with the sharp increase of energy prices after the invasion of Ukraine by Russia. It has also taken profit from the European Central Bank cautiousness which has until now increased its rates in a very moderate action and has avoided that the indebted countries were confronted with a financial crisis as it happened in 2012. Growth figures for 2022 have been received with satisfaction but that one must be moderated.
INSEE has given a 2.6% first estimation which is slightly superior to these ones of the main Western economies. Germany will grow by 1.8% and the United Kingdom has entered into recession during the 2nd half of the year, which could be extended to 2023 due to the political uncertainties and to the consequences of the Brexit. The American economy will have been a slightly less dynamic (2.1%) in spite of an increase of its fossil fuels production and exports, as a direct consequence of the sanctions adopted against Moscow.
But the INSEE figure must not create an illusion because, regarding a year-to-year average, it has benefited from the 2021 rebound (+6.8%), concentrated on the 2nd half of the year. The acquired growth at the start of 2022 was already 2.6%. During the year, the increase of the production has so been very weak and France has known a near-stagnation during the 3rd (+0.2%) and the 4th (+0.1%) quarters, especially due to the heavy negative contribution of the foreign exchanges. Nothing allows to being sure that a substantial rebound will occur in 2023. The forecast included in the finance bill (+1.1%) is cautious but even if it is realized despite the recession risks frequently evocated, it will not be strong enough to make unemployment significantly reducing.
Unemployment rate has again fallen to reach 7.3% at the end of the year. But this level is by large superior to the rate of Northern European countries and to the U.S. ones, all of them between 3 and 5%. The number of jobseekers without any activity (A category) has also fallen (-9.4% in metropolitan France) with 2.8 million persons. But that diminution is partly compensated by the increase of the number of persons having a reduced activity (+4%) and who wish to find again a full-time job.
Thanks to the measures adopted to limit the fossil fuels prices increase, inflation has been limited to 6.2% in 2022, a figure largely inferior to the other eurozone countries ones. But these measures, due to their cost couldn’t remain forever and the tensions on the supply chains will persist. Regarding re-localization of the industrial basis projects, they will take a lot of time to being put into effect. The persistence of a high inflation rate, compared to the two previous decades ones, is so highly likely and the comeback to a level inferior to 4% is few conceivable in 2023.
That situation is hurting household purchasing power because wages and social benefits will not probably follow the trend. But it profits to public finances; regarding 2022 year, the government has announced 20 billion euros supplementary receipts which will reduce the budget deficit to 151.5 billion. The trend will accelerate in 2023 with strong increases of V.A.T. receipts, and corporate profits and household revenues taxes. But these increases would have been much larger if the 33% rate for profit tax had not been reduced and especially if had not been adopted in 2015 the 30% basic tax for financial revenues which mainly profits to taxpayers whose marginal tax rate is higher.
To that we could add the massive social charges reductions introduced with the CICE in 2013, in the name of the recovery of the enterprises competitiveness. The heavy deficit and France indebtedness are not only the consequence of too much high public expenditures and social benefits. It also results from charges and taxes reductions given to enterprises and to the richest taxpayers. The growing discontent of the population which reveals itself at the occasion of the pension reform is so not surprising.
Did these measures generate the expected result with the competitiveness recovery and the beginning of the re-industrialization? No. At the end of the year 2022 manufactured goods production, according to INSEE figures was only 1.8% above the level reached in 2015. Only few sectors, in equipment goods, machines and pharmaceutical products had significantly progressed during these seven years. The consequence of this failure can be found in the disastrous results of the French foreign trade.
In 2013, the deficit (FOB-FOB), for all goods, was 62 billion euros. In 2020, just before the energy crisis and despite a fall of household consumption and investments, it was 64 billion. In 2022, it will be above 160 billion, the explosion of the energy bill explaining just a share of that deterioration. In 2013, the energy bill represented 66 billion. Thanks to the prices fall, in 2020, it was only 29 billion. In 2022, it will be above 100 billion. The manufactured goods trade deficit (CAF-FOB) without military goods exports, passed so from 36 billion in 2013 to 68 billion in 2020 and remained near that level in 2022.
The policy, having as an objective to reestablish enterprises competitiveness, to the price of tens of billion euros each year of charges and tax reductions has so been a failure because its analysis was based on a major mistake. What is hurting in France competitiveness it is less workers costs than the growing bureaucratization of the French society. It has been shown in public services by an increase of the expenditures and a fall of the quality of the services. It is especially striking regarding hospitals. Public organisms, especially at the local level with the many structures of cooperation between communes, have been multiplied. That trend has been accompanied with an unprecedent inflation of regulation texts. Their volume, counted by the organism Legifrance has doubled in 20 years to reach 44 million of “legal words”.
Enterprises have had to adapt themselves to a legal framework which was permanently changing and to more and more complex norms. That made dearer their investments and increased the duration of their achievements.They had also to hire employees to watch over the compliance of their activity. The massive transfers they benefited have so been mainly employed to cover these unproductive expenses and these costs, which have hurt their competitiveness, to the contrary of the announced objectives.
France is confronted with a social crisis after the decision of the government to modify the pension system in the name of the respect of the long term financial equilibrium and of the necessity to reform the country. But it makes a mistake. The true reform, it will be the one which consists in de-bureaucratizing France, in reducing the number and the size of the public institutions and to stop to produce texts making enterprises as household life more complicated. To achieve that, a real will is necessary because, as said a long time ago Lao-Tseu, “Where is the will, there is the way”.