20180523-NATIXIS-Could_the_French_economy_be_in_trouble_in_a_few_years__8页_902kb

Flash Economics Summary

Core Content

The document discusses the potential economic challenges France may face if the ongoing reforms fail to deliver the expected results. It outlines three main areas of concern: low growth, external trade deficit, and public finances deterioration. These risks are assessed based on current trends, historical data, and policy changes.

Main Points

1. Low Growth and Structural Unemployment

• France currently has a low employment rate and low potential growth.
• If reforms do not yield significant results, the economy may return to low potential growth of around 1.2% per year.
• Structural unemployment is high, as evidenced by increasing hiring difficulties.
• This indicates that the labor market is not adapting effectively to economic changes, limiting the country's growth potential.

2. Deterioration in Foreign Trade

• The domestic supply of goods and services is unresponsive to demand increases.
• This is due to:
  • Weak corporate modernisation (Table 2: low stock of industrial robots per job)
  • Low labor force skills (Table 1: PIAAC survey results)
  • High production costs (Chart 5: unit labor costs in manufacturing)
• As a result, foreign trade is expected to decline, leading to a large external deficit (possibly 2–3% of GDP).
• Rising oil prices could further exacerbate this deficit.

3. Public Finances and Fiscal Deficit

• If growth remains weak, the cyclical fiscal deficit will not improve.
• The fiscal deficit could reach 4% of GDP in 2021 without new measures.
• The taxation and public spending policies (Table 3) are expected to reduce tax revenues and increase public spending, worsening the fiscal position.
• The fiscal deficit will likely require austerity measures if reforms do not succeed.

Key Information

• Employment rate and potential growth are central indicators of France's economic health.
• Reforms in areas such as taxation, vocational training, and labor market rules are intended to improve these metrics.
• Ineffective reforms could lead to:
  • Low growth (around 1.2% per year)
  • Large external deficit (2–3% of GDP)
  • High fiscal deficit (4% of GDP)
• Historical data and comparative analysis are used to highlight France's relative weakness in productivity and labor skills.
• Corporate modernisation and investment in technology (industrial robots) are lagging behind other EU countries.
• Fiscal policy is expected to become more restrictive in the absence of growth and reform success.

Conclusion

If the reforms in France fail to produce the desired outcomes, the country may face a difficult economic situation in 2–3 years. This would include low growth, a significant external deficit, and a high fiscal deficit. The document emphasizes that these risks are not hypothetical but are based on current trends and policy trajectories.

Disclaimer Highlights

• The document is intended for professionals and qualified investors.
• It is strictly confidential and not a personalized investment recommendation.
• No liability is accepted for any use or interpretation of the information.
• The views and forecasts are based on public information and may be subject to change.
• Regulatory compliance is emphasized, with various restrictions in place depending on the recipient's location.