One of the themes of this blog for a while now is that the economy of France is struggling and that the country is in danger of a relapse. The post credit crunch recovery that France saw was strong and far exceeded the performance of the UK but then like it was circling the “supermassive black hole” sung about by the band Muse the economy got sucked back downwards again. The annual growth rates of 1.7% in 2010 and 2% in 2011 found themselves replaced by the 0% of 2012 and the 0.2% of 2013 as the Euro crisis added to the credit crunch impact.
The latest GDP (Gross Domestic Product) numbers were a little better.
In Q3 2014, GDP in volume terms* increased by 0.3%, after a slight decline in Q2 (–0.1%).
However so far they have gone 0%,-0.1% and now 0.3% in 2014 which is weak at best and the fastest growing component was this.
General government expenditure increased by 0.8% in the last quarter (after +0.5%).
How that fits in with the official government mantra of more austerity is anybody’s guess!
Employment and Unemployment
This has been a running sore for both the French economy and the French people as unlike its neighbour across La Manche the unemployment rate has remained persistently high. Last week brought more bad news on this front.
In Q3 2014, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.4%, after 10.1% in Q2 2014. In metropolitan France only, with 2.8 million people, 9.9% of the active population was unemployed. The unemployment rate increased by 0.2 percentage points q-o-q in metropolitan France, and returned back to its Q3 2013 level.
We also got bad news if we widen our employment definition to include for example those forced to work fewer hours or underemployment.
In Q3 2014, 6.5% of the persons employed were underemployed, increasing by 0.3 percentage points.
Slack work stood at 0.5% of the persons employed. It rose by 0.2 percentage points over the quarter.
All in all a pretty grim picture but we know that this is essentially a backwards looking measure and that a more forwards looking measure is to look at employment numbers. Yesterday the official data told us this.
In Q3 2014, payroll employment in principally market sectors decreased sharply by 0.3% q-o-q (-55,200 jobs), after a slight increase in the previous quarter. Excluding temporary work, employment dropped in Q3 2014 (-33,400 jobs). Services collapsed this quarter (-0.3% after +0.3%).
The unemployment data had hinted at employment falls and as you can see this is what took place in the third quarter of 2014. This is particularly weak when we consider that there it experienced what was a better rate of economic growth. However we note that we may be seeing the gap between the private and public-sectors again as this report is for “principally market sectors”. Oh and I do not know about you but I imagine a French bureaucrat be instructed to write “I must not use the word collapse” a thousand times in the manner of Bart Simpson.
What about inflation?
In the past commentators used to construct what was called a Misery Index which added the rates of unemployment and inflation together. That has fallen into disuse mostly because a u-turn has been performed and apparently high and low inflation is bad for us! Poor Goldilocks would be wondering at this point if her porridge will ever be the right temperature again. It is in the light of this that we advance on this morning’s data release.
In November 2014, the Consumer Prices Index (CPI) decreased by 0.2% after it stayed steady during the previous month. Seasonally adjusted, it went down by 0.1% in November 2014. Year-on-year, the CPI grew by 0.3%, down from 0.5% in October 2014.
A major factor in this was the energy and petroleum sector as you might expect. Energy prices fell by 0.6% on a monthly basis and petroleum prices fell by 2.7%. We know that since then the oil price has been signing along to Alicia Keys.
I, I, I, I’m fallin’
I, I, I, I’m fallin’
I keep on
The latest ECB (European Central Bank) monthly report has published its estimates of how falling oil prices affect inflation in the Euro area. As you might imagine I crunched the numbers and they are an initial effect downwards of 1.4% on consumer prices followed by a secondary effect of 0.7%. This is comparing today with a year ago and is the total fall so some of the move is already in the numbers but a reasonable amount is yet to come.
There are issues with such numbers as a spot measure may not apply to a larger fall for example so please take them as a broad conceptual brush.
But if we return to France we see that consumer inflation rate looks set to go lower and at current oil prices could easily see some negative prints. However on the official Euro area measure of HICP there is a little more room to breathe as the annual rate is 0.4%.
Is this deflation?
The media have latched onto one of the numbers released this morning as evidence of this.
In November 2014, the core inflation indicator (ISJ) declined by 0.1% compared with October 2014 and by 0.2% compared with November 2013. It is the first time that the core inflation is negative since this indicator has been measured (computed from 1990).
The fact that this is the first time this series (from 1990) has gone negative is certainly eye-catching but we can do better than scanning every possible number and then screaming deflation on any negative print.
True deflation involves both falling aggregate demand and falling prices. If we look at the labour market figures quoted earlier then they are suggesting falling private-sector demand at least. We know that we are also near falling prices. So as we mull the phrase “even a blind squirrel occasionally finds a nut” we see that this time they may be onto something.
If we move to output then even the serial optimists at the Bank of France are predicting a near miss.
GDP is expected to increase by 0,1 % in the fourth quarter of 2014 (second estimate, unchanged).
What about production?
As you can see it turned downwards in October.
Manufacturing output of the last three months diminished slightly compared to the same months of previous year (–0.3% y-o-y). Industrial output decreased as well (–0.6% y-o-y).
That was after a more hopeful September.
The business surveys
The essential detail is to be found below.
The latest PMI data show a deepening downturn in
the French service sector during November. With
manufacturing also continuing to struggle, the private
sector looks set to act as a drag on GDP during the
The picture in terms of domestic data looks unremittedly gloomy as we see that if we use labour market and consumer inflation data then France looks to be tottering on the edge of a deflationary phase. The business surveys offer little hope.
Against this there is the reflationary impact of the falling oil price on France. As France imports an estimated 1.7 million barrels of oil a day (US EIA) then it will benefit substantially from the falling oil price and similar if smaller gains will be made via gas imports. So the boost to the economy as we move forwards through 2015 should help to pull France out of any deflationary spiral but we are uncertain of the timing. How much France will be affected by the fact that its large nuclear and green energy production will be comparatively over-priced is hard to say.
Monetary policy is theoretically expansionary in Europe but we have seen before that central banking activity does not reach the real economy that often. In the spirit of that then my view of today’s 130 billion Euro TLTRO (Targeted Long-Term Refinancing Operation) was given some time ago by Newt in the film Aliens.
It won’t make any difference