L'Information est d'Or

Post date: 11 Feb 2019 As images of unrest in the streets of Paris and other French cities continue to flood in the European media, the data on France contained in our latest global forecast, published last week, painted a subtler but still concerning outlook for the French economy. GDP growth was at 1.5 per cent in 2018 and recent developments suggest that the acceleration in growth in 2019 that we were previously expecting may not occur. We have therefore downgraded our forecast of annual GDP growth from 1.9 to 1.6 per cent in 2019. Turner's famous yellow A broad range of surveys point to a marked and sudden deterioration in the business environment and consumer confidence. The business climate composite indicator, a survey of business managers compiled by INSEE, declined in December 2018 to a two-year low and the composite PMI dropped in December from 54.2 to 48.7, below the 50 mark which indicates expansion. Social protests represented by the ‘gilets jaunes’ movemen...

The French 5-year budget plan currently under review in the French Parliament deserves careful attention because it is the first one under President Macron and a unique opportunity to address some of the structural weaknesses of the Eurozone’s second largest economy: a high level of taxes and public spending, a competitiveness problem and high unemployment. In NIESR’s November Review , we simulated the main measures of the plan and analysed their macroeconomic impact. We find that this plan strikes a fine balance between improving the French economy’s medium-term growth prospects, returning public finances to a more sustainable path and not damaging short-term GDP growth. However, the quantitative objectives set forth in the plan of reducing public deficit by 2 per cent of GDP and debt by 5 per cent of GDP by 2022 appear too optimistic, and this view is shared by the European Commission. Alexandre III bridge during a flood of the river Seine (June 2016 - picture taken by th...

I first published this article on the National Institute of Economic and Social Research blog . It is reproduced here with permission. As French citizens prepare to go to poll on Sunday to elect their representatives in the National Assembly, the lower – and more powerful - chamber of parliament, here is a snapshot of how the French economy has performed in the last five years, identifying three key challenges to long-term prosperity. To follow through on President Macron’s election on a reformist agenda, it is important that a majority willing to tackle those problems emerges from the assembly. Mont Saint-Michel, one of France's most touristic monuments. Picture by the author At the broadest level, the French economy under-performed its Euro Area partners for the last five years, extending earlier trends. French GDP per capita grew between 2011 and 2016 by 0.4% per annum compared to 0.5% in the Euro Area (figure 1), which means that French GDP per capita is now on...

The Gallois report about the French industry's competitiveness has just been made public (links here ) and received a lot of publicity from the French media. As a trained economist and French patriot, I was eager to read it. The author, a respected businessman - formerly head of aerospace giant EADS -  describes rather briefly the declining state of the French industry over the last ten years, which accounted for 18% of GDP in 2000 and is now down to 12.5%. What are the causes of this decline? The author cites various causes, ranging from product quality, technology, labour flexibility, cost, competition, education and regulation. Standard economic theory says the government should increase labour flexibility, promote competition, support education and enact smart regulation. For example, the Porter Hypothesis (cf Ambec et al 2011 ) states that market-friendly environmental policy can enhance business competitiveness through innovation. What are the main propositions? Create...

Being part of the Eurozone - and therefore in direct competition with other European nations -means that France has no choice but to enact urgently the following economic reforms: Reduce the weight of public spending in GDP (currently at 57%) Reduce debt before the market forces us to Reform labour market to make it more flexible and reduce unemployment. (cf Unemployment and market frictions Otherwise, they will end up in a Cul de Sac   Which of the 2012 presidential candidates offers such a programme? Not too sure...

After my recent experience of job hunting in France, I can report on the organization of the job market in France, its structure and organization. I found that there are a lot of frictions in this market and some of the frictions are due to the excessive weight of regulation. 1. Frictions in the French employment market First, I was quite surprised that, contrary to the popular perception, there aren't many intermediaries: aka recruitment agencies that you can contact, and that know which skills are required and direct you towards the right people. Hence, it seems like most of the time, firms contact potential candidates directly. Although it may seem like bypassing an intermediary speeds up the process, actually firms then loose the screening abilities of recruitment firms, which may then result in suboptimal outcome. In my opinion, recruitment firms also don't use enough their personal connections to anticipate future demand and then to propose their candidates before a fo...

By Douglas Irwin A large body of research has linked the gold standard to the severity of the Great Depression. This column argues that while economic historians have focused on the role of tightened US monetary policy, not enough attention has been given to the role of France, whose share of world gold reserves soared from 7% in 1926 to 27% in 1932. It suggests that France’s policies directly account for about half of the 30% deflation experienced in 1930 and 1931. A large body of economic research has linked the gold standard to the length and severity of the Great Depression of the 1930s, primarily because fixed exchange rates precluded the use of monetary policy to address the crisis (see for example Temin 1989, Eichengreen 1992, and Bernanke 1995) But it has never been entirely clear why the gold standard produced the massive worldwide price deflation experienced between 1929 and 1933 and the enormous economic difficulties that followed. In particular, worldwide gold reserves ex...

Bad news for one of the high profile industry in France, which contains for instance wine. According to a research by three economists from the Toulouse School of Economics , the food processing industry in France has lost 0.44%pa of productivity over the decade from 1996 to 2006. Of course, this loss of competitivity is at the expense of foreign competitors. At the same time, agricultural sector has made small competitivity gains (2%pa) which the food processing industry benefitted. The authors suggest that increased regulation may be (partly) responsible for this loss of productivity. However, since most of the regulation is now EU-wide, I doubt that this could explain the difference with our European competitors.

Ever since the defeat of the right-wing in the local elections  in France, some MPs of the ruling UMP party feel like they have to "do something" quickly, however stupid this thing might be. Their first demand was to cancel the project of a Carbon Tax. Their argument in a nutshell was that such a tax would only work if it was applied to most countries, that it was not a good time to introduce a new tax during a recession and anyways, taxing was a left-wing thing. I find it a shame that for once we had the opportunity to move from taxing labour (a good thing) to taxing pollution (a bad thing), but I understand that there is disagreement among economists as to what the appropriate carbon tax level should be, so... A few days later, having succeeded on their first demand, the same MPs demanded to remove the 50% cap on personal tax, arguing that this limit was preventing any new tax and that new taxes were necessary to reduce the budget deficit. What? Just a few days after havi...

French President Sarkozy gives a summary of his actions as head of France. He has done a lot - some say too much, 55 reforms started! - but has also created some deceptions that he will need to tackle. It's too early to judge his actions but my opinion is that he should focus on increasing France's economic competitivity. Come on France, you need to move on!