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AB 2000 studies

Alain Boublil Blog

 

-0,1% : The French growth during 2024 4th quarter

The publication of the 1st estimate of the growth of the French economy in the 4th quarter comes after several other very unfavourable indicators have been made public: a sharp rise in unemployment over the same period, the persistence of a trade deficit over the last twelve months close to 90 billion euros, the continued fall in housing starts (30% in two years) all in a context of accumulation of public deficits and record debt. The only good news concerns inflation: it rose to 1.4% in January over one year and makes France one of the best pupils in the euro zone. 

The CAC 40 index peaked in May 2024 and then fell following the political instability created by the dissolution. It is on the way to returning to this high level by approaching 8000 points again. Since the beginning of the year, it has rebounded by about 9%. Never before has there been such a disconnect between the situation of the economy as a whole and that of the main companies and major financial institutions, since their stock prices reflect their good health.

Meanwhile, the deterioration of public finances has been continuous and the government is now seeking to curb it. But the lack of a majority in the National Assembly complicates his task and above all the refusal to acknowledge past mistakes prevents the appropriate solutions from being found. The French economy has been stagnating for almost ten years now, with the exception of the short-lived fall and rebound observed following the Covid-19 epidemic. Economic policy has been inspired by a principle that has not changed: to support supply in order to restore the competitiveness of companies.

This policy, not necessarily in its principle but in the methods adopted when it was introduced, has not produced the expected results, the most revealing element being the persistence of a very large external deficit in trade in industrial goods. Despite speeches on reindustrialisation that are more a matter of communication than an acknowledgement of reality, this policy has only produced very modest results compared to the stakes and the sums spent.

It was based on reductions in the burdens weighing on companies which were granted without compensation and above all without being limited to sectors exposed to foreign competition. It granted a reduction in corporate tax, from 33% to 25%. This has largely benefited large groups and one only has to observe the evolution of the CAC 40 to be convinced of this. These costly measures have been the main cause of the deterioration of public finances and the increase in debt, which now stands at more than 110% of GDP. They have not been accompanied by the necessary efforts to reduce the operating expenses of the State and local authorities. 

The action of successive governments over the past ten years, which has been inspired by this principle, has therefore not led to a significant increase in productive investment or an increase in household consumption, which are decisive factors in supporting growth, as shown by the figures published for the year 2024. On the contrary, these measures are at the origin of the increase in public deficits that has led France to the situation it is in today: to have austerity measures accepted in a context of economic stagnation. The rise in votes in favour of extremist parties, motivated in particular by the rejection of this policy, is the direct consequence of this.

The disappointing figures for household consumption and record savings levels were blamed on a worrying international environment and uncertainties arising from the country's political situation. This explanation is insufficient. Two main reasons are ignored. The first is structural and must be taken into account in economic policy choices: it is ageing. As we age, we consume fewer goods (we keep them longer) and services (we travel less in old age). The second is the result of the rise in inequality, a well-hidden and very real phenomenon.

The household financial savings rate broke all records in 2024. It represented 8.6% of gross disposable income on average over the first three quarters of the year. Before, it rarely exceeded 6%. We put this increase on the worries about the future. This is a false line of reasoning. Those who are rightly worried are the most disadvantaged social strata and they do not have the means to save. On the other hand, households with the highest incomes invest their money because their resources exceed their consumption needs and they are most often already owners of their home and even have a second home. The increase in household financial savings, which had already reached 6000 billion at the end of 2023, is largely due to the increases in income received in 2024 by the most advantaged social strata.

A significant part of financial income comes from dividends paid. With the results of listed companies expected to at least hold steady in 2024, we will therefore see a continuation of the accumulation of these savings in 2025, which we know is concentrated on a small part of the population. However, financial income has benefited from a tax advantage for nearly 10 years: the "flat tax". They are only taxed at a rate of 30% while the rates of the highest income tax brackets exceed 40%, which weighs on public finances and further increases inequalities.

At a time when unemployment, already very high with more than 3 million unemployed, is on the rise again and when the French are being asked to work more, in a context of record public debt, the political forces of the former presidential majority are determined not to call into question the past choices that led the country into one of its worst economic and political crises of the last sixty years and that we do not significantly rebalancing tax levies. To be convinced of this, it is enough to observe the reactions to the modest proposal to reduce the tax rate of large groups to the past level and only for one year.

The poor result of growth in the 4th quarter has not, for the moment, been enough to raise awareness of the real reasons that have led France to this situation. And it is not the declarations of some big bosses who are amazed by the announcements of the President of the United States, that will advance the reflection. France's signature is solid and the ten-year rate is 100 basis points lower than the US rate. Each Treasury issue is significantly oversubscribed. Nor is it by raising the spectre of bankruptcy that the population will be convinced.

On the contrary, it is by recognizing the value of the work of the French, by ceasing to call them lazy, by admitting past excesses and correcting them that confidence in the political world will be restored. France will then be able, in accordance with its historical tradition, to return to a growth trajectory that reconciles economic efficiency and social justice. Let us therefore hope that this symbolic figure of -0.1% awakens consciences.