2015 has been a year that has brought better news for the Euro area economy. Not only is monetary policy very expansionary with interest-rates of -0.2% and a program of QE (Quantitative Easing) being undertaken but as an oil importer it has benefited from an oil price around 50% lower than a year ago. Added to that the exchange rate of the Euro is overall lower in spite of the recent bounce or in specific terms the trade-weighted exchange-rate is 6.5% lower than a year ago. So if we move to the situation in the second largest economy then it should be very favourable for La Belle France. However the upgrade to Euro area economic growth this morning from 0.3% to 0.4% in the second quarter of 2015 has this as a feature.
GDP increased in all Member States for which data are available for the second quarter of 2015, except France where it remained stable.
Gross Domestic Product
This morning the Bank of France has told us this.
According to the monthly index of business activity (MIBA), GDP is expected to increase by 0.3% in the third quarter of 2015 (second estimate, unchanged).
Whilst it tends to the optimistic end of the spectrum it looks like France is growing albeit not especially fast. As we look back we see that the last half-year has been a disappointment in what is a favourable environment. From Insee.
In Q2 2015, GDP in volume terms* was stable: 0.0% after +0.7% in Q1 2015.
Is stable the new flat-lining? Anyway we see that in the detail there were two main troubling issues.
Household consumption expenditure decelerated sharply (+0.1% after +0.9%) while their total gross fixed capital formation (GFCF) decreased again (–1.6% after –1.1%).
So investment (GFCF) seems to have found something of a downtrend which you would not expect as the economy moved forwards. Also at a time when real incomes were rising due mostly to the impact of the lower oil (and other commodity) price it is disappointing that domestic consumption fell. You might be wondering how the economy did not shrink? Trade bailed it out.
Also you may be wondering how the promise of Q1 turned into the “stable” of Q2 well it is this which is a reply to a question I was asked in another form about a month ago.
Conversely, changes in inventories contributed negatively: –0.4 points after +0.3 points in the previous quarter.
With apologies to Megan Trainor “It was all about the inventories”
So we have in the first three-quarters of 2015 estimated GDP growth of 1% as we wait for confirmation. Also we seem to have falling investment.
What about the outlook?
Returning to the Bank of France we are told this.
Industrial production rose slightly… According to business leaders, industrial production should continue to increase in September.
In the services sector, activity, mainly driven by the temporary work and transport services sectors, rose a little.
Construction sector activity grew a little, thanks to a rebound in finishing works.
So it is all apparently improving just not by much. If we look for some perspective we see that in what are long-running series with an average of 100 then services are at 96, industry at 98 and construction at 95. The latter was the only one to nudge higher (from 94). Oh and like me you may have a wry smile at the mathematical precision of 98.023 for industry!
What about other surveys?
The latest Markit Purchasing Managers Index or PMI told us this.
The final seasonally adjusted Markit France Composite Output Index – which covers the combined manufacturing and service sectors – posted 50.2 in August, down from 51.5 in July.
So even slower growth than from the official sources and maybe a hint of a contraction?
Prospects for third quarter GDP therefore look softer, following stagnation recorded in the second quarter.
Care is needed as there has been something of what might be called a turf war here over the past couple of years as Markit and the official statisticians argue over the exact picture. In general the Markit picture is less optimistic than the official one.
What about employment and unemployment?
If we compare France to the Anglo-Saxon economies then a clear difference has been seen in the behaviour of the labour market. It has seen less of an employment improvement and has therefore found both higher and more persistent levels of unemployment. This does not appear to be changing much.
In Q2 2015, payroll employment in non-farm market sectors raised by 0.2% q-o-q (+27,300 jobs), after a stabililty in the previous quarter.
Whilst a job is a job the main increase was in temporary employment which poses a question in itself, unless they are using the definition of temporary used by central bankers. So we find that France continues to have double-digit levels for its unemployment rate.
In Q2 2015, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.3% of active population……Over a year, the unemployment rate increased by 0.3 percentage points.
Also I note that the improved economic situation has yet to turn the level of unemployment decisively lower. Also the situation regarding underemployment has its own issues.
In Q2 2015, 6.6% of the employed persons were underemployed, increasing by 0.1 percentage points over the quarter.
There are plenty of disputes inside countries as to how unemployment rates are calculated let alone between them! But France’s headline rate of 10.3% is double that of the United States (5.1%) and not far off double that of the UK (5.6%).
The other side of the coin is the state of play as regarding wages and particularly real wages. This is a theme of this blog and the situation was not so hot running into the credit crunch but sadly it then got worse. However France mostly sailed through it with the period 2010 to 2012 seeing annual changes of 0%,-0.1% and -0.1% (International Labour Organisation data). Nothing to write home about? Well look at my home country the UK which went -1.8%,-3.5% and the -1.9%.
It is too simplistic to say that UK workers priced themselves into jobs but it is also wrong to completely ignore that. If you like the UK is a place where it would have been better to be unemployed as you are more likely to have found work but if you were in work then France saw better wage growth.
The European Central Bank
As well as it explicit efforts to improve the Euro area economy and hence the French one the ECB is providing an implicit boost for the French government. Its QE program bought 8.1 billion Euros of French bonds in August making the total some 53.billion at an average maturity of just under 8 years. We of course do not know what French bond yields would be otherwise but we can be sure that investors would not be paying it for its 2 year bonds and that a ten-year yield of 1.03% would be higher perhaps a fair bit higher.
Thus the French government is able to spend and perhaps borrow more than otherwise.
One way of looking at the situation is that France prioritised wages over employment when the credit crunch hit. For a while the economy improved but then it turned down and the period since 2012 has been something of a struggle. Over the past four years the official data tells us that the economy has grown by a mere 2.2%. Thus Bonnie Tyler may be right about it.
I was lost in France
In the fields the birds were singing
I was lost in France
And the day was just beginning
As I stood there in the morning rain
I had a feeling I can’t explain
I was lost in France in love
Of course the official view as ever is rather different. From MNI New here is the Finance Minister.
Speaking to journalists in Paris, Sapin said second-quarter GDP data showing zero growth the French economy were “deceiving” and that pace of growth was likely to exceed the government’s 1.0% forecast.