France continues to see its economy struggle

It is time for us to cross the Channel or La Manche if you prefer and take a look at the economy of France. The UK media seldom get past what is happening around Calais these days although the Financial Times is keen to point out the efforts France is making to get business from the UK.

France will this week step up efforts to attract business from London in the wake of the Brexit vote by appointing a team of corporate leaders and politicians to drive the campaign.

I may well see them as you see French is certainly the secondary and sometimes the primary language in Battersea Park these days. The Ecole at South Kensington has been added to by I believe a couple of others in Battersea. Even the FT finds itself having to admit by default why so many moved the other way.

The inflexibility of the French labour code, along with high taxes, is one of the main reasons some financial groups say they will be reluctant to move to Paris.

Relative Stagnation

Another issue has been the travails of the French economy. Initially it rebounded from the impact of the credit crunch but then it struggled and stagnated. Whilst it evaded the main issues of the Euro area crisis there plainly was some impact as France found economic growth hard to achieve. The latest official numbers tell us that for half of 2016 the economy pretty much stood still.

In Q3 2016, gross domestic product (GDP) in volume terms* recovered: +0.2%, after -0.1% in Q2.

If we look into the numbers whilst there was a return to growth it relied on a very large swing in inventories which of course cannot go on for ever.

In Q3, changes in inventories contributed to GDP growth by +0.6 points, after -0.8 points in Q2.

Domestic demand was only marginally higher ( it added 0.1% to GDP) which has to be a disappointment when you consider that the ECB ( European Central Bank) has an official interest-rate of -0.4% and QE. Actually there is another troubling issue where the French look rather like the UK.

All in all, foreign trade balance contributed negatively to GDP growth (-0.5 points after +0.6 points).

If we look into this more deeply we see this.

In Q3 2016, imports recovered sharply (+2.2% after -1.7%), particularly due to purchases of raw hydrocarbons and transport equipment. At the same time, exports accelerated moderately (+0.6% after +0.2%)

Overall this means that the French economy grew by 1.2% in 2015 and so far in 2016 is growing at an annual rate of 1.!%. The ECB has thrown the equivalent of a monetary kitchen sink looking at Euro area economic  growth and so will be noting that this is the sort of economic growth which has caused trouble for both Italy and Portugal.

National Debt

When you lack economic growth the lesson taught us by Italy and Portugal is that the national debt sings along to the Electric Light Orchestra.

higher and higher it’s a living thing

The latest numbers for France tell us this.

At the end of Q2 2016, the Maastricht debt amounted to €2,170.6 billion, a €31.7 billion increase in comparison to Q1 2016. It accounted for 98.4% of GDP, 0.9 points higher than the Q1 2016’s level.

It is edging towards 100% which these days is mostly symbolic as of course the bond buyers of the ECB are chomping away on French government bonds like Pac men and women. They have bought some 202.5 billion  Euros worth and rising so far. This means that the ten-year yield is a mere 0.5% or so and the five-year is -0.28%.

In 2015 France’s fiscal deficit was 3.6% of its GDP. If we go back to my subject of yesterday it is yet another economy which contrary to the establishment line has been receiving a fiscal boost. However it has stability and growth pact rules applying in the opposite direction and so far in 2016 has trimmed borrowing a little. By the way rules needs to go into my financial lexicon for these times.

As you can see various problems emerge here. France continues to run a deficit and if economic growth fails to pick up the national debt to GDP ratio will start “slip,sliding away” . If you think about it this poses a real problem for the ECB as should it begin to “taper” its QE then presumably French bond yields would rise and it would make its fiscal deficit worse. This is one of the reasons why I think any taper is not on the immediate horizon.

Also debt full stop may well turn out to be an issue for France as marketwatch pointed out back in May.

while France’s equivalent (total) debt is around 280% of GDP, up 66% (since 2007). This tally ignores unfunded pension and health-care obligations, as well as contingent commitments to euro zone bailouts.

Latest News

We get a bit of ying and yang here as yesterday’s news on the automotive sector was disappointing. From Reuters.

PARIS — French new-car registrations fell 4 percent in October to 155,202 after sales at domestic automakers Renault and PSA Group both dropped, the CCFA industry association said today.

This seemed to be concentrated in the French manufacturers.

Renault’s sales declined by 9.2 percent last month, while PSA’s registrations fell 5.8 percent. Renault’s sister company Nissan saw its volume fall 18 percent.

In better news the Markit PMI business survey has shown a pick-up for French manufacturing.

The latest survey data signalled an improvement in the French manufacturing sector, underlined by a solid expansion in production. New orders also increased for the first time this year, albeit at a more subdued pace.

Although care is needed as 51.8 is growth but not a lot of it and compares with 53.5 for the Euro area as a whole.

House Prices

There is a clear divergence here with the UK and is illustrated by the official numbers below.

Year-on-year, house prices increased in Q2 2016 (+0.8%), for the second consecutive quarter. New dwellings prices grew a little more (+1.0% y-o-y) than second-hand dwellings prices (+0.7%).

This is made clearer by the overall house price index being set at 100 in 2010 and being 100.4 now!


There is much to consider here as we note that for France the new economic growth norm seems to be 1% rather than the 2% we somewhat disappointedly recognise for ourselves. Over time if that persists the power of compounding will make it a big deal. Now is it the changes in the UK housing market that have made much of the difference where there is some economic growth but in my opinion we also count inflation as growth.

There are a lot of similarities as Jeremy Smith of Prime Economics pointed out in April 2015.

The total population size is almost the same…….For 2014, the OECD puts France at $2,525,962m, and the UK at $2,552,152m (in current prices and current PPP, or purchasing power parity)……..Or take the structure of the economy – the UK and France each has a manufacturing sector which is 10-12% of the total economy (production as a whole is 15%) while the service sector for each is 79%……And last but not least in similarities, both have gaping trade in goods deficits, which added together come to roughly the equivalent of Germany’s trade surplus!

The differences are the housing market and in particular house prices and the exchange rate system with the UK having its own and France sharing the Euro. But perhaps the biggest difference is the labour market with the UK having an unemployment rate of 4.9% and France 9.9%. From that come all sorts of issues for productivity and wages.


24 thoughts on “France continues to see its economy struggle

  1. Really interesting article about our next door neighbour. A couple of comments:
    1. The French exodus to London tells you more than the figures about the relative attractiveness of the economies;
    2. In thirty five years of being in business, I have never once heard a businessman want to set up in France or expand into France or move the business to France.
    It is a shame, as I love going to France and many things French. Doing business there just isn’t one of them…

    • The question is, “How many things French that you love are either dependant on, or concomitant with, an atmosphere less than ideal for business.

      Frankly I despise the view that so many, but not all, of us in UK have, that the benefit, or otherwise, to the economy, should be the arbiter of all things.

      • Agree. The emphasis (headlines in the news) these days is far too biased towards pumping up asset values, maintaining ever growing retail sales, ever growing corporate profit margins and that the end of the world as we know it will occur if this should stall for only a short time. It is particularly noticeable in the Anglo Saxon world and less so in club med, where the economies are in a far worse state. Somewhere in the past, quality of life took a back seat.

        • You are both so right about money as a measure versus quality of life. The sad thing is that it seems very difficult to find a balance that achieves both. You seem to have either the 5% unemployment, flexible Anglo-Saxon model or you have the agreeable but 10-25% unemployment Greek/Italian/Spanish model.
          It doesn’t seem possble to have both in Europe and I don’t count parasite countries like Luxembourg as examples of nirvana

  2. “….. we also count inflation as growth.”

    we should really motor along next year then , if the forecasts are correct for inflation
    ( and Comical Carney gets his way ….. )

    UK having an unemployment rate of 4.9% and France 9.9%- really are they the same measure ?

    a few millions on zero hour contract whilst drawing bennies is not a healthy sign to me

    and we dont measure under employment either ?

    Frankly all this cheering on how we’re better than the French doesn’t seem to add up . After 30 years of this guff I’d expect that we’re be stella ( we’re not ) or France a 3rd world country ( they’re not )

    instead we’re still approx the same …… I think the best correlation is Oil consumption to GDP – seem both countries track close

    Why is energy in general not considered more closely in economics ?


  3. Thank you for this – good to discuss something other than MC’s employment prospects and his celeb. status.
    Your blog just underlines, that the only country doing well in the EU, is Germany! All the rest are in dire straits or marking time. So EU’s GDP growth figures are Germany’s, trimmed by the others poor performances.
    As you say, can you see the end of QE and bond purchase when almost all of the countries will collapse without them?

    • Hi Foxy

      QE is like going further and further into a Venus Fly Trap. The one country which has stopped doing more is the USA but even they roll on ( Operation Twist) what they have.

      As to Germany doing well there was this today from Bloomberg.

      “The number of people out of work declined by a seasonally adjusted 13,000 to 2.662 million in October, data from the Federal Labor Agency in Nuremberg showed on Wednesday. Economists in a Bloomberg survey forecast a drop of 1,000. The jobless rate dropped to 6 percent, the lowest level since the country’s reunification.”

  4. Hi Shaun
    Good to see the Prime Economics piece which confirms what I have been saying for years, there is precious little difference between UK and France economies.
    The difference in reported unemployment numbers is a figment of UK’s recording of under-employed and self-employed as well as working age people just completely outside statistics ( ie 2 of my 3 kids). And yes the completely different philosophy regarding ‘housing’ and consequent use of the inflated numbers in the UK statistics.
    There used to be two factors in France’s favour, one remains that of providing basic food within its own borders. The other used to be electricity production, with its nukes being an nett exporter to other nations. However this is now under threat, there are increasingly problems with its ageing fleet and its newly found AGW/Green agenda. This will have a negative effect on the UK as we increasingly rely on French back-up on wind-less winter days. If its not there , and its likely not to be, the Grid’s back up capacity disappears. Just last month , Eurostar closed down for an extended period for ‘technical reasons’. These reasons were lack of power because of system instability in the Calais region as nukes were not providing support.
    By the way , French taxation on individuals is generally lighter than in the UK, it is Social Charges that are higher. You will still find it hard to find many French (wo)men who would rather give up their social ‘contact that provides health services and pension provision in return for lower SCs. Of course the threat is that those services are eroded without and decrease in charges, then the barricades will be out on the Paris streets again.
    SCs and the myriad of employer liabilities are responsible for the structure of French businesses. Paris hosts more ‘top 500’ world companies than anywhere else; and there are hundreds of thousands of small businesses with less than a handful of employees ( its very easy to start a small business in France). However mid range companies face huge burdens and this discourages the equivalent German-type economy.
    Generally the French are proud of their ‘contract’ rather than embrace Anglo economics.
    It does seem to produce a society with less obvious extremes; but that does not take into account the poor treatment of north african immigrants over decades, a ticking time bomb.
    Germany exports, France and the UK imports an equivalent amount. I know which two countries I would ( and do) rather live in.

    • Hi JW

      I thought it was time to present a different perspective on the French economic situation. It is simply not keeping up with Germany but has tied itself to it in many ways. It will be interesting to see how that develops over the next few years although the world has November 8th to navigate first.

      • Hi Shaun
        I don’t understand what ‘it is simply not keeping up with Germany’ actually means. There are ‘economic indicators’ and then there is life in the real world. France is generally a great place to live ( with the exception of a few ‘cesspits’) . Comments on France’s demise have been written over decades, Forbin has it right, they should be bust several times over by now.
        None of the above doesn’t mean that French ‘elite’ can be complete ‘pains the a*se’ ( just like the Brits!).

    • ‘It does seem to produce a society with less obvious extremes; but that does not take into account the poor treatment of north african immigrants over decades, a ticking time bomb.’

      France has a host of social problems in the Banlieues that have not been dealt with by successive govts.

      Worrying times when the money runs out.The follwoing quote stood out for me.

      ‘while France’s equivalent (total) debt is around 280% of GDP, up 66% (since 2007). This tally ignores unfunded pension and health-care obligations, as well as contingent commitments to euro zone bailouts.’


  5. “And last but not least in similarities, both have gaping trade in goods deficits, which added together come to roughly the equivalent of Germany’s trade surplus!”

    In other words: “Germany gets richer whilst France and the UK get poorer.”

    • Hi Cynic_Rick and welcome to my corner of the web

      Also it is one of the factors which makes like hard for other Euro area members. Whilst there is effort to push the Euro lower there is demand provided by the German trade surplus. So it gets a lower currency than otherwise but the weaker nations get a stronger currency.

    • Trade surpluses and deficits have no correlation to how rich or otherwise a country is. This is a very commonly held fallacious thought. The USA has a huge trade deficit with China, does this mean China is richer than the US?

      • No, but it means that if this continues, at some future date China will be richer than the US!
        If you consistently spend more than you have coming in then for sure you’ll go bust at some stage.
        For 200 years the UK had built up lots of riches, but 30 years of care-free spending has brought us to the brink while the likes of Germany stand ready to pick up the last of the bargains via our give-away currency!

        • It really doesn’t.
          Its the current account deficit/surplus that counts over time, and that has far more to do with relative returns on investments overseas against return on inward investments than anything else. Its only very recently that that has been down for the UK.

  6. Great blog as always, Shaun.

    At the risk of taking the conversation out of economics and into politics, to what extent has French growth been hurt by the string of Islamist terrorist attacks that they have suffered? I believe that France gets more tourists than any other country on earth so when their tourism industry suffers, it’s going to have an impact on other sectors.

    • Hi Andrew and thanks for the link

      As to the tourism numbers we only have them for the second quarter of 2016 and if we consider that there would have been a boost from the European football championships they are especially weak.

      “In the second quarter of 2016, throughout metropolitan France, the number of overnight stays in tourist collective accomodation slipped back sharply: -4.8% compared to the same period in 2015 after a rebound in Q1 (+1.1%). The decline was greater for campsites and holiday and other short-stay accomodation than for hotels. It was more significant for foreign customers (-8.5%) than for residents (-2.9%). The drop in foreign customer occupancy, largest than the first quarter (-2.7%) was similar to that in Q4 2015, after the terrorist attacks of November.”

  7. Hi Shaun, you’ve got to hand it to Mario. he said “whatever it takes!” and for a couple of years he was criticised for being all mouth and no trousers but he’s producing the uppance now and on into the future silencing his critics whom have now resorted to criticising him for depressing bond yields and creating a rigged market – damned when he didn’t and now damned when he does!

    Unlike you I believe the time of tapering is approaching in the next 12 – 18 months as he will feel more international pressure to stop because it appears there is the beginnings of a concerted CB effort at “normalisation” back to lowish interest rates as opposed to NIRP. .

    It’s nice to see a nation with it’s head screwed on when it comes to house prices, they rightly view houses as places to live in rather than the twisted UK view of something to make “money for nothing” on.

    • Hi Noo2

      Mario has indeed acted with large sums of money in the bond markets and governments have benefited but the economy has hardly lept forwards. Also there is the issue of maybe one day reversing it all or exiting. Of course a “taper” might be a start to that but I think we are discussing different time periods. I expect Mario to extend QE beyond next March without a taper for say another 6 months. After that it will depend on the circumstances.

      As to house prices I agree that the French system seems better than ours.

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