How near to deflation and disinflation is the economy of France?

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.

Oh baby
I, I, I, I’m fallin’
I, I, I, I’m fallin’

I keep on

Number Crunching

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
fourth quarter.



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


17 thoughts on “How near to deflation and disinflation is the economy of France?

  1. Hello Shaun,

    Apparently the Euro is good for killing all the economies of Europe except the Germans

    Perhaps they need to call in some Pirates from London ?


    PS the French eat popcorn too

  2. Shaun,
    I was there in November, it was pretty much un-changed, lots of listless young folk eeking out an existence with the assistance of socialist handouts. Crippling taxation that provided the hand-outs and therein a self-defeating circle of preservation of “La France”. Food still nice, Weather warmer. motorways navigable and easy, lots of un-populated land, really quite attractive compared to old blightly, as long as you weren’t trying to be an economic participant…..
    Paul C.

    • Hi Paul C

      Yes it is a lovely country with many natural advantages in its ability to grow food etc. However the economics of driving an economy with government spending growth only has its flaws, apart from the fact we are supposed to be seeing austerity. The debt to GDP ratio is now 95.2% and rising…

  3. Excellent article, Shaun. I cannot see change happening any time soon. As soon as Emmanuel Macron opened his mouth, the left were jumping up and down on his neck – and he is supposed to be “the one bright hope” for Hollande! And his reforms are not that radical. If there are huge divisions in his own party, I’m sure we’ll see another pas de deux from his boss, just to keep the peace.

    • Hi Ray

      France is a bit like Italy in that we are continually told that reform is just around the corner but we never turn the corner! The ECB continues to press but what actually changes?

      “However, in order to strengthen investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms need to gain momentum in several countries. It is crucial that structural reforms be implemented credibly and effectively as this will raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery. ”

      In a way it is summed up by the plan to let shops open 12 Sundays a year? It just seems a half-way (literally 1/4 way) house.

  4. and despite it all is France really worse off or better off than England ?

    I mean , they still have a car industry , and they buy our utilities …..

    and they still can build a nuclear power station

    what did we bet on ?

    Formula 1 , gambling and the City with TBTF Banks………….

    I’d posit if there is a collapse the French could still feed themselves and have electric power

    and us?

    you can’t eat money …..


  5. As the Sun reverses polarity, so doe the Earth:

    The thrifty are to be punished, the financially incontinent rewarded.

    What’s good for the electorate, is bad, and what’s bad for the electorate, good.

    To make sure that we get our “medecine” all political parties promise cuts, but tell us that these cuts will promote growth.

    We close schools and libraries, hospitals and day care centres, whilst preparing to pay £40bn for a rail link that we already have, but this one is a bit faster.

    Generals/admirals/air marshalls get their masturbation projects, whilst our soldiers are killed for lack of rudimentary equipment.

    All hail the banks, and the politicians they own!

    • Hi therrawbuzzin

      There is still the issue of hoe far France got in sorting out its banks. This is a common theme but what I mean by this is that they did not even get as far as we did in the UK so the future there is potentially even worse. They did however have time to sacrifice Greece on the altar of French (and German) banks.

  6. Hi Shaun
    One stat you missed out was average real wage growth rate. Compare that to UK/US/Germany since 2009.
    All is definitely not rosy in ‘la republique’. Globilisation has similar effects. But the average working class guy on €18k/yr can adequately house, feed and educate his family and have access to excellent health care. It won’t get better, he has to run faster to stay still, but its not collapsing. Not many places you can say that.

    • Hi Shaun
      For the ‘Oil will never fall to $40 crowd’, tonight Canada heavy is at $42 and North Dakota at $45 and falling. What many forget is that ‘oil’ doesn’t have one price, Brent is but one of many prices.

      • If that’s aimed at me I was specifically talking Brent and WTI – we’ll see whose right. By the way, if “theres no reason why oil shouldn’t fall to $40” then why not $30 or $20 – how do you arrive at $40??

    • Hi JW

      I did indeed discuss quantity measures for the labour market rather than wages (the price). France has done much better than the UK in terms of real wages since the credit crunch hit. If we look back the UK outperformed France in the run-up especially in the early years of this millenium so overall we have lost only a little ground for a better employment/unemployment mix.

      However if the trend is your friend the UK pattern for real wages is a clear issue.

      I envy France’s ability to feed itself and wish that the UK would up its game in this regard. But like energy that would require some planning…

      • Real wages are measured using the questionable CPI, I’d guess that France scores better using purchasing power parity thank to sky high UK housing costs that especially hurt the young in the home counties.

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