The unemployment rate in France continues to signal trouble

It is time for us to nip across the Channel or perhaps I should say La Manche and take a look at what is going on in the French economy. This morning has brought news which reminds us of a clear difference between the UK and French economy so let us get straight to the French statistics office.

In Q4 2016, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.0% of active population, after 10.1% in Q3 2016.

Thus we note immediately that the unemployment rate is still in double-digits albeit only just. Here is some more detail.

In metropolitan France only, the number of unemployed decreased by 31,000 to 2.8 million people unemployed; thus, the unemployment rate decreased by 0.1 percentage points q-o-q, standing at 9.7% of active population. It decreased among youths and persons aged 50 and over, whereas it increased for those aged 25 to 49. Over a year, the unemployment rate fell by 0.2 percentage points.

So unemployment is falling but very slowly and it is higher in the overseas departments. It is also rising in what you might call the peak working group of 25 to 49 year olds. It was only yesterday we noted that the UK unemployment rate was much lower and in fact less than half of that above.

the unemployment rate for people was 4.8%; it has not been lower since July to September 2005

Thus if we were looking for the key to French economic problems it is the continuing high level of unemployment. If we look back to pre credit crunch times we see that it was a little over 7% it then rose to 9.5% but later got pushed as high as 10.5% by the consequences of the Euro area crisis and has only fallen since to 10% if we use the overall rate. Thus we see that there has only been a small recovery which means that another factor is at play here which is time. A lot of people will have been unemployed for long periods with it would appear not a lot of hope of relief or ch-ch-changes for the better.

Among unemployed, 1.2 million were seeking a job for at least one year. The long-term unemployed rate stood at 4.2% of active population in Q4 2016. It decreased by 0.1 percentage points compared to Q3 2016 and Q4 2015.

The long-term unemployment rate is not far off what the total UK unemployment rate was for December (4.6%) which provides a clear difference between the two economies. Here is the UK rate for comparison.

404,000 people who had been unemployed for over 12 months, 86,000 fewer than for a year earlier

It is not so easy to get wages data but the non-farm private-sector rise was 1.2% in the year to the third quarter. So there was some real wage growth but I also note the rate of growth was slowing gently since the peak of 2.3% at the end of 2011 and of course inflation is picking up pretty much everywhere as the US “surprise” yesterday reminded pretty much everyone, well apart from us. Unless French wage growth picks up it like the UK will be facing real wage falls in 2017.

Productivity

There is an obvious consequence of the UK producing a broadly similar output to France with a lower unemployment rate if we note that productivity these days is in fact labour productivity. There are always caveats in the numbers but the UK Office for National Statistics took a look a year ago.

below that of Italy and France by 14 and 15 percentage points respectively ( Final estimates for 2014 show that UK output per worker was:)

My worry about these numbers has always been Japan which for its faults is a strong exporter and yet its productivity is even worse than the already poor UK.

above that of Japan by 14 percentage points

Economic growth

This remains poor albeit with a flicker of hope at the end of 2016.

In Q4 2016, GDP in volume terms* accelerated: +0.4%, after +0.2% in Q3. On average over the year, GDP kept rising, practically at the same pace: +1.1% after +1.2% in 2015. Without working day adjustment, GDP growth amounts to +1.2 % in 2016, after +1.3 % in 2015.

However the pattern is for these flickers of hope but unlike the UK where economic growth has been fairly steady France sees quite wide swings. For example GDP rose by 0.6% in Q1 so the economy pretty much flatlined in Q2 and Q3 combined. Whether this is a measurement issue or the way it is unclear. We do know however that it seems to come to a fair extent from foreign trade.

All in all, foreign trade balance contributed slightly to GDP growth: +0.1 points after −0.7 points. ( in the last quarter of 2016).

But as we look for perspective we do see an issue as for example 2016 should have seen two major benefits which is the impact of the lower oil price continuing and the extraordinary stimulus of the ECB ( European Central Bank). Yet economic growth in 2015 and 2016 were both weak and show little signs of any great impact. If we switch to the Euro then its trade weighted value peaked at 113.6 in November 2009 and has fallen since with ebbs and flows to 93.5 now so that should have helped overall. In the shorter term the Euro has rotated around its current level.

Production

With its more dirigiste approach you might expect the French economy to have done better here but as I have pointed out before that is not really so. If we look at manufacturing France saw growth in 2016 but we see a hint of trouble in the index for it being 103 at the end of 2016 on an index based at 100 in 2010. So overall rather weak and poor growth. Well it is all rather British as we note the previous peak was 118.5 in April 2008. Actually with its 13% decline that is a lot worse than the UK.

manufacturing (was) 4.7% lower when compared with the pre-downturn peak in February 2008.

Of course there are also links as the proposed purchase of Opel ( Vauxhall in the UK) by Peugeot reminds us.

Oh and those mulling the de-industrialisation of the West might want to note that the French manufacturing index was 120.9 back in December 2000.

Debt and deficits

This has received some publicity as Presidential candidate Fillon said this only yesterday. From Bloomberg.

Reviving a statement he made after becoming prime minister in 2007, Fillon said France is essentially bankrupt and warned that it can face situations comparable to those of Greece, Portugal and Italy. “You think it can’t happen here but it can,” he said.

As to the figures the fiscal deficit at 3.5% of GDP is better than the UK but of course does fall foul of the Euro area 3% limit. The national debt to GDP ratio is 97.5% and has been rising. On the 7th of this month I pointed out that France could still borrow very cheaply due to the ECB QE program but that relative to its peers it was slipping. That has been reinforced this week as for the first time for quite a while the Irish ten-year yield fell to French levels.  It may seem odd to point this out on a day when France has been paid to issue some short-tern debt but the situation has gone from ultra cheap to very cheap overall and there is a cost there.

Comment

I pointed out back on the 2nd of November last year that there were more similarities between the UK and French economies than we are often told but that there are some clear differences. We have looked at the labour market today in detail but there is also this.

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.

Oh and of course house prices if we look at the UK boom which began in the middle of 2013 we see that France has in fact seen house prices stagnate since then as the index was 103.03 ( Q2 2013) back then compared to 102.82 in the third quarter of 2016

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17 thoughts on “The unemployment rate in France continues to signal trouble

  1. Shaun, very timely as we listen to electioneering in our closest neighbour.

    It amazes me that folk think that the status quo will remain in Europe when you factor this unemployment level, a decreasing employment trend for those critical to output in their most productive years and recent terrorist attacks and recent political expenses abuse and almost complete rejection of Hollande’s failing and ill conceived propping up of the establishment.
    Of all the tell tale election indicators the French one will be the stake rammed into the heart of the EU. Hopefully it will trigger a wholesale reconsderation for Europe and rescue of the project to prevent outright disintegration and protectionism.

    Paul C.

    • Hi Paul

      The unemployment numbers must be an issue in the election and the question of why the French economy picked up post credit crunch but then lost its way. That is as near as I will get to politics except that the results that we are told cannot happen are happening quite a lot these days.

  2. Hi Shaun, as someone who follows politics, the French economy is a wonderfully topical subject! I am watching events over the Channel with a lot of interest – clearly economical factors will be behind how the electorat chooses to vote. Enjoying your blog every day. Melandra

  3. I think we all know where France’s problems stem from, uneconomic and over prescriptive labour laws and regulations, a large state bureaucracy and cowardly capitulation to labour unrest. Unless these issues, which most French politicians avoid, are tackled, it is only going to get worse.

    • Hi Foxy

      There has been an FT view today on the subject.

      “France, however, has huge potential. Its demographics are far better than Germany’s. Workers are relatively productive. Successive governments have shied away from reform of the labour market.”

      This does not really address the problem in my view and then we get a weakening of any resolve.

      “French voters want to break with a status quo that has failed them. This is a useful sentiment if it does not tip into destructive despair. France needs change. It does not need to burn down the system to achieve it.”

      Mind you the FT view is invariably that the status quo is fine is it not?

  4. Hi Shaun, I seem to remember some years ago the OECD stated French unemployment would only start to fall once economic growth was over 1%pa. They appear to be bang on the money with that prediction, and think it was made before Mario decided to “do anything it takes” or the oil price plummeted. So in my view the result is especially disappointing for a President who was swept to power on the basis that he’d solve the unemployment conundrum. Well it was 10% in 2012 and it’s 10% now, so his promises are now little maore than an early version of “fake news”.

    I know we don’t do polictics here but if you were appointed by the new President to revise the labour market, what would you suggest? Or do you feel reducing unemplyment more rests on GDP growth rather than structural change?

    Andy

    • Hi Andy

      There is a good part and a not so good part. The former is that it needs to be easier and cheaper to employ people ( I don’t mean wages so much here as other costs) and the latter is that it has to be easier to also sack people. These reforms have to be aimed at the smaller firms as if there is to be growth it will come from them.

      The French like their social model and fair enough but for economic growth to flourish there needs to be more flexibility

  5. Shaun
    A couple of small comments, if I may
    1. I have never met a businessman who would choose France as a country in which to operate.
    2. On top of the UK/French unemployment comparisons that you make above, one could perhaps add the hundreds of thousands of skilled and employed French people in the UK.
    I think that these two things show that, both from an employer and employee point of view, the French system is not working well.

    • Hi James

      I can add to point 2 in that there is a large French population in my part of London ( Battersea). There were always some mostly because of the Charles de Gaulle Lycee in South Kensington but now there are two ecoles at least in Battersea. Even the FT admitted it.

      “In recent years, as the French population has grown, it has spread south of the river Thames to Battersea and west to Fulham, spawning nursery schools and restaurants as it goes………The French consulate in London says there are more than 3,000 French businesses employing nearly 400,000 people in the UK. ”

      Seems some thing it is easier to start a business here…

  6. Shaun,
    The trade figures could be affected by the french nukes that were, mostly, put out of action by a Health & Safety review in the Spring which turned France from an energy exporter to an importer.

  7. The French havn’t yet learned that if you give parents thousands per annum through tax credits for working 16 hours a week, often “self-employed”, you can cut unemployment quickly.

    I mean it does cost billions to achieve this trick but it seems to work to twist the stats, if not the deficit.

  8. I am a member of a sporting (sailing etc.) club in the 04 department. We need a’Chef de base’ to look after the Club property and share lookout duties etc. If we had to pay the going rate plus SS contributions, the 130 members would be bankrupt. Enter a kind Civil Servant who proposed a reasonably qualified candidate and offered a 2 year deal – 15% payable by the Club and 85% by the xxx office (state). One happy unemployed bod off the register! Easy!!.

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