La Belle France continues to find sustained economic growth elusive

It is past time for us to hop across the channel or in this context La Manche and take a look at the ongoing economic problems of France. These have no doubt not been helped by the effect of the recent terrorist outrages on tourism but today has given us a reminder of other issues with the French economy. So let us get straight to it.

Production and Manufacturing

This morning’s data release shows that it was not a good June for either overall production or manufacturing in France. From Insee.

In June 2016, output decreased in the manufacturing industry (-1.2% after +0.1% in May). It declined again in the whole industry (-0.8% after -0.5%).

Imagine if that had been the pre-Brexit position in the UK! The Financial Times would cover nothing else. Perhaps the award of a Legion d’Honneur to its editor Lionel Barber may mean that it may be in no rush to point out that the situation in June in France was considerably worse than the UK.

If we look for more perspective we see that the problems are more than just for a single month.

Over the second quarter of 2016, output decreased slightly in the manufacturing industry (-0.2% q-o-q). It was virtually stable in the overall industry (-0.1% q-o-q).

So in essence these readings spent the second quarter on a road to nowhere. That picture does not change much if we switch to an annual comparison.

Manufacturing output of the second quarter of 2016 grew slightly compared to the same quarter of 2015 (+0.3%, y-o-y). Overall industrial output was also up (+0.4%).

The release is rather reticent or perhaps forgetful on the issue of a monthly comparison with 2015 so let me help out. In June 2015 adjusted production was 101.7 and this year was 100.4 whereas manufacturing had dropped from 102.7 to 101.2.

Factors at play

Like the UK the transport sector in France has been having a good run.

Over a year, manufacturing output soared in the manufacture of transport equipment (+7.6%) and rose more moderately in “other manufacturing”(+0.5%).

The whole transport manufacturing sector seems to have been doing well as I note this from the Financial Times earlier.

BMW sales hit fresh records in July

However the boomlet does seem to be fading so needs watching. On the other side of the coin has been what is happening in the energy industry in France.

Output collapsed in the manufacture of coke and refined petroleum products (-12.4% after -21.0%)
Output plunged in the manufacture of coke and refined petroleum products, because of the shutdown of a refinery and blockades of several others in the beginning of June.

So there should be something of a bounce back there once things return to normal.

What about consumption of goods?

In June 2016, household consumption expenditure on goods decreased: -0.8% in volume*, as in May.

Now this gets a little awkward as we note that a factor in this is something which is overall a benefit for France which is lower expenditure on energy.

In June, consumption of energy tumbled significantly (-6.3% after -0.8%); it is its highest drop since June 2013.

GDP growth

The second quarter of 2016 turned out to be quite a disappointment.

In Q2 2016, GDP in volume terms* was stable : 0.0% after +0,7% in Q1.

I will look at the way this must have disappointed the ECB (European Central Bank) in a moment but there was quite a sharp fall in domestic demand seen.

All in all, final domestic demand (excluding inventory changes) was flat: its contribution to GDP growth was flat (after +1.0 points in Q1)

This was mostly consumption falling but there was also a decline in investment. Net exports rose in case you are wondering why the numbers do not add up but even there we saw something to mull.

Imports significantly stepped back (-1.3% after +0.5%), while exports still modestly declined (-0.3% as in the previous quarter).

So yes trade was a positive influence but only because imports fell faster than exports.

Looking Ahead

We are not too early for the Bank of France indicator which in its usual over optimistic fashion predicted GDP growth of 0.3% and the 0.2% for the second quarter of this year. From Reuters.

France’s economy will expand 0.3 percent in the third quarter, returning to growth after stalling in the previous three-month period, the said on Monday in its first estimate for the period.

The central bank gave its estimate in its monthly business climate survey, in which it said industrial sector confidence picked up slightly in July, increasing by one point on the previous month to 98. However confidence within the services sector dipped by a point to 96.

There is food for thought in the numbers which are long-running series where the average is 100. Earlier this month the PMI survey for the Euro area pointed out this.

whereas France continued to hover around the stagnation mark……However, France continued to stagnate, acting as a significant drag on the region.

If we look into the detail of the reports specifically on France we see this.

The service sector returned to growth at the start of the third quarter, compensating for ongoing manufacturing weakness and leaving overall private sector activity broadly flat on the month.


Mario Draghi and his colleagues must be wondering what to do next as France joins Italy in the economic slow lane with Germany and Spain in the fast line and of course Ireland which according to its statisticians overtook the Starship Enterprise in 2015. That is a problem of one size fits all monetary policy.

But France has benefited from a lower exchange rate with the trade-weighted Euro at 94.6 as opposed to the 104.5 of March 2014. Also the official interest-rate is set at -0.4% ( below the lower bound for the UK claimed by Bank of England Governor Carney) and as of the beginning of this month had purchased some 179.2 billion of French government bonds. This means that at the 2 and 5 year maturities France is paid to borrow and even at the benchmark 10 year it currently pays a mere 0.12%. As to whether the low level of bond yields boosts the economy is a moot point but it certainly helps the fiscal position of the French government.

With growth low more eyes will turn to this number especially as it approaches 100%.

At the end of Q1 2016, the Maastricht debt amounted to €2,137.6 billion, a €40.7 billion increase in comparison to Q4 2015. It accounted for 97.5% of GDP, 1.4 points higher than the Q4 2015’s level.


This has been a long running saga where the French economy recovered well from the initial credit crunch impact in 2010 and 11. But the follow-up blow of the Euro area crisis has seen its economy stagnate and now even with the ECB monetary accelerator pressed to and sometimes beyond the metal there seems to be more problems. Sustained economic growth seems to be singing along with Bonnie Tyler.

I was lost in France

Bank of England

Yesterday it failed to purchase as many UK Gilts as it wanted to buy. This was a consequence of trying to buy ultra long-dated UK Gilts which is something I have critiqued many times as well as before the event yesterday. I suggested a solution on Twitter.

Dear Bank of England Simply buy some extra medium-dated Gilts today! Yours Shaun

Instead the solution was well not a solution.

The Bank will incorporate the Stg 52mn shortfall from yesterday’s uncovered operation within the second half of the current six-month purchase programme.

Talk about making yourself look inflexible and leaden footed. The markets will take them as well as sadly us as taxpayers for fools now.


8 thoughts on “La Belle France continues to find sustained economic growth elusive

  1. We here in the UK may indeed think things in France are like Bonnie Tyler’s interpretation. However, I imagine the French themselves prefer to see things through the eyes of Charles Trenet and his whistful renditiuon of La Mer. This beautiful song speaks of a sunny past, but as we all know, the reality of coastal French life is somewhat different, washed up plastic rubbish on the beach, fishermen blokading the ports and all roads closed due to striking workers at the local oil refinery which the government want to close down.

    La mer
    Qu’on voit danser le long des golfes clairs
    A des reflets d’argent
    La mer
    Des reflets changeants
    Sous la pluie

    • As one with an option to be in either place, I know I’d rather be here in the Tarn. France, for all its many faults, is still a very nice place to live.

  2. Hi Shaun
    I don’t think anyone should under-estimate the pyschological effect of the terrorist outrages on France. Coupled with major industrial disputes over most of the spring and early summer, it is bound to have affected the economy. Energy consumption was down because petrol was scarce over many areas of the country in June/early July.
    I have found that despite obvious differences, the French are quite similar to the Brits in that they are fairly resilient in face of silly central government ‘policies’. They are adept at ‘carrying on regardless’ in face of labour disputes etc. Generally they don’t expect their own beaurocracy , utilities etc to work very well, and develop ways of living life anyway. They generally have a similar view of the EU, and don’t understand why the UK doesn’t adapt their strategy, ie take the bits it wants and ignore the rest. I don’t believe any French government would ultimately be allowed to lose its nationality within a Federal state, there would be literally blood on the streets.
    As I have said before , the similarities between the UK and France completely outweigh the apparent differences. Whilst ostensibly following different social and economic philosophies the ‘size’ of the two economies have stayed roughly equal for many years now.
    As I responded to Andy above, I am writing this from the Tarn and glad to be so. However I am very aware that there are two main reasons for many parts of France continuing to be rather good places to live. The accident of geography with vast areas of low population density; coupled with the French ‘lock’ on Germany supporting its small farmers and rural way of life via the CAP. Also I would not like to live in many urban areas of France where years of neglect have fostered complete alienation of north African immigrants, this is a problem that will blight France for years to come.

    • Hi JW

      The terrorist issue has raised its head tonight again with the bomb scares on 2 flights into Brussels. Fortunately they were false alarms. As the the French economy the UK football economy is doing its bit as it pays a grand salary to Paul Pogba (assuming he goes back to France eventually) and of course a boost to the Italian one via Juve.

      Perhaps we are more similar than either side might like to admit! There was a clear difference I spotted though as numbers like this would have the UK establishment and Bank of England in quite a state.

      “In Q1 2016, house prices were practically stable compared to the previous quarter (-0.2%, not-seasonally adjusted data), both for second-hand dwellings and for new dwellings………However, year-on-year, house prices rose in Q1 2016 (+0.6%), for the first time since Q2 2012. New dwellings prices increased more (+0.9% y-o-y) than second-hand dwellings prices (+0.5%).”

      • I suspect ‘il piccone’ is unlikely to return to live in France, perhaps Monaco where a good chunk of that money is going.
        Ah yes, the French think houses are for living in and handing down to generations or having as holiday homes; rarely as ‘piggy banks’. Part of the reason why whereas the state’s debt rise to 100% of GDP, personal debt is rather more modest than across the channel.

  3. Hi Shaun:

    “As to whether the low level of bond yields boosts the economy is a moot point but it certainly helps the fiscal position of the French government.”

    I’ve been pondering this for a while now and have come to the conclusion we are about to see lift off of Fiscal expenditure over the next 2 years funded by these low rates as the CB’s of the World stop just short of outright monetisation.

    Global Establishment articles I’m reading are showing a growing acceptance/despair that monetary policy isn’t working and mention is being made of how cheap it is to borrow when Sovereign bond analysis has been undertaken.

    I think the tide is shifting away from “Austerity” and more to ,,,,er….”spend spend spend” which may actually work if the money is spent on appropriate things like transport infrastructure for the short, medium and long term and education for the long term.

    • Unfortunately the “spend,spend, spend” is usually on ego projects that grab the headlines, but fail to bring any long term benefits. Most are London and SE biased, because that where most of the politicians and top civil servants live. So look out for HS2 taking the few from London up north and back, 20 minutes quicker,a new symphony hall and a garden bridge in London, a ten lane M25, another Heathrow runway, a refurbished Parliament costing billions (and you thought the Scottish one was grandiose) all over budget and late.
      The rest of the country being ignored except for the odd new art gallery that only that the elite will visit.

  4. Hi Shaun,

    The Reserve Bank of NZ has just trimmed the official cash rate by 0.25% to a record low of 2%.
    – and the kiwi dollar has risen, quite sharply.
    The Govnr. of the RBNZ is said to be “disappointed” since the high dollar was believed to be the primary reason for a cut. (Source: NZ Herald)

    Monetary Policy in the 21st century does have its challenges!

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