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Flash Economics: Deterioration in French Foreign Trade

Core Content

This document discusses the long-term deterioration in France's non-energy foreign trade balance since the late 1990s, with a significant decline observed since 2013. The analysis aims to identify the key factors contributing to this decline, focusing on cyclical, cost competitiveness, and structural aspects of the economy.

Main Points

1. Deterioration in French Foreign Trade Balance

• France's non-energy trade balance has been declining continuously since the 1990s.
• The decline became more pronounced after 2013.
• When excluding the surplus sectors (luxury goods, aeronautics/space, pharmaceuticals), the trade balance shows a marked deterioration since 2004.

2. Factors Contributing to the Deterioration

• Cyclical factors:
  • Recruitment difficulties among companies.
  • Low capacity utilisation rates.
• Cost competitiveness:
  • A negative impact from the real trade-weighted exchange rate, indicating reduced competitiveness.
• Structural problems:
  • Shortfall in industrial production capacity.
  • Insufficient sophistication of production, as measured by industrial automation levels compared to other OECD countries.

3. Econometric Analysis

• The cyclical situation negatively affects the trade balance, primarily due to recruitment challenges.
• Cost competitiveness also has a negative effect, driven by the real trade-weighted exchange rate.
• Structural factors show a strong positive effect when considering the ratio of France's industrial production capacity to that of the OECD, indicating a relative weakness in this area.

Key Information

• Chart 1A illustrates the annualised non-energy trade balance of France.
• Chart 1B breaks down the trade balance into surplus and non-surplus sectors.
• Chart 2 displays the capacity utilisation rate and proportion of companies with recruitment difficulties.
• Chart 3 shows the real trade-weighted exchange rate over time.
• Chart 4A and Chart 4B highlight the structural issues in France's industrial production capacity and automation levels.

Conclusion

The growing external deficit in France's non-energy foreign trade is attributed to three main causes:

1. Cyclical factors: Recruitment difficulties and low capacity utilisation rates.
2. Cost competitiveness: A negative impact from the real trade-weighted exchange rate.
3. Structural weaknesses: Insufficient industrial production capacity and low levels of industrial automation.

These factors collectively explain the long-term decline in France's trade balance, especially when considering the performance of surplus sectors.

Disclaimer

• The document is intended for professional and qualified investors only.
• It is strictly confidential and must not be disclosed to third parties without prior consent.
• It does not constitute a financial analysis or personalized investment recommendation.
• No liability is accepted for the accuracy or completeness of the information provided.
• The views expressed are those of the authors and do not necessarily reflect the views of Natixis or its affiliates.
• The document is subject to the regulations of various financial authorities, including the ECB, ACPR, AMF, FCA, and DFSA.