Will 2017 see an economic rennaisance for France?

This morning has opened with some better economic news for France as GDP ( Gross Domestic Product) growth was revised higher.

In Q1 2017, GDP in volume terms* rose barely less fast (+0.4%) than in Q4 2016 (+0.5%).

The French statistical service have put in it downbeat fashion and you have to read to the end to spot it as it is right at the bottom.

The GDP growth for Q1 2017 is raised from +0.3% to +0.4%.

There was also a good sign in the fact that investment was strong.

In Q1 2017, total GFCF accelerated sharply (+1.2% after +0.5%), especially that of enterprises (+1.9% after +0.9%)……Investment in manufactured goods was more dynamic (+1.6% after +0.4%), notably in equipment goods. Similarly, GFCF in market services accelerated sharply (+1.9% after +0.7%), notably in information-communication and business services.

However it was not a perfect report as there were signs of what you might call the British problem as trade problems subtracted from the growth.

Exports fell back in Q1 2017 (−0.8% after +1.0%), especially in transport equipment and “other manufactured goods”. Imports accelerated (+1.4% after +0.6%)………..All in all, foreign trade balance weighed down on GDP growth by −0.7 points, after a contribution of +0.1 points in the previous quarter.

If we look back there may be an issue building here as import growth was 4.2% in 2016 which considerably exceeded export growth at 2.1%. So it may well be true that the French are getting more like the British which is something of an irony in these times.

You may be wondering how there was any economic growth after the net trade deficit and that is because inventories swung the other way and offset it.

In Q1 2017, the contribution of changes in inventories to GDP growth amounted to +0.7 points (after −0.2 points at the end of 2016). They increased especially in transport equipment and “other industrial goods” (pharmaceuticals, metallurgy and chemicals).

The optimistic view on this is that French businesses are stocking up for a good 2017 with the danger being that any disappointment would subtract for growth later this year.

Also as feels so common in what we consider to be the first world the manufacturing industry continues to struggle.

Manufacturing output fell back (−0.2% after +0.7%), mainly due to a sharp decline in the coke and refined petroleum branch and a slowdown in transport equipment.

Looking ahead

The good news is that the private-sector business surveys are very optimistic at the moment.

The latest PMI data points to further strong growth momentum in the French private sector, with the expansion quickening to a six-year peak.

Of course France has been in a rough patch so that may not be as good as it reads or sounds so let us look further.

The service sector saw activity increase for the eleventh time in as many months. Moreover, the rate of expansion accelerated to a six-year high and was sharp overall. Manufacturing output also continued to rise markedly, albeit to a fractionally weaker extent than in April.

As you can see the service sector is pulling the economy forwards and manufacturing is growing as well according to the survey. Unusually Markit do not make a GDP prediction from this but we can if we note they think this for the Euro area which has a lower reading than France.

consistent with 0.6- 0.7% GDP growth.

So let us say 0.7% then and also remind ourselves that it has not been common in recent years for there to be an expectation that France will outperform its Euro area peers.

However this morning’s official survey on households did come with a worrying finale to the good news stream.

In May 2017, households’ confidence in the economic situation has improved anew after a four-month stability: the synthetic index has gained 2 points, reaching 102, above its long-term average and at its highest level since August 2007.

What could go wrong?


This has been the Achilles heel for France in the credit crunch era but this too has seen some better news.

In Q1 2017, the average ILO unemployment rate in metropolitan France and the overseas departments (excluding Mayotte) stood at 9.6% of active population, after 10.0% in Q4 2016.

The good news is that we see the unemployment rate finally fall into single digits. The bad news is that it mostly seems to be people who have given up looking for work.

The activity rate of people aged 15-64 stood at 71.4% in Q1 2017. It decreased by 0.3 percentage points compared to the previous quarter and a year earlier.

The business surveys are optimistic that employment is now improving as we see here.

Bolstered by strong client demand, French private sector firms raised their staffing numbers in May, thereby continuing a trend that has been evident since November last year. Furthermore, the rate of job creation quickened to a 69-month high.

Monetary policy

Yesterday we heard from ECB ( European Central Bank ) President Mario Draghi and he opened with some bombast.

Real GDP in the euro area has expanded for 16 consecutive quarters, growing by 1.7% year-on-year during the first quarter of 2017. Unemployment has fallen to its lowest level since 2009. Consumer and business sentiment has risen to a six-year high,

You might be wondering about monetary policy after such views being expressed but in fact we got this.

For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation.

Is that a Tom Petty style full speed ahead and “Damn The Torpedoes”? For now perhaps but there are two other influences. In terms of a tactical influence Mario Draghi will have noted the rise of the Euro since it bottomed versus the US Dollar in December last year and would prefer it to be lower than the 1.12 it has risen to. Also more strategically as we have discussed on here before he will be waiting for the Euro area elections to pass before making any real change of course in my opinion. That leaves us mulling once again the concept of an independent central banker as we note that economic growth is on the upswing in election year.

Thus France finds itself benefiting from 293.7 billion Euros of sovereign bond purchases meaning it can issue and be paid for it out to around the 6 years maturity and only pay 0.74% on ten-year bonds. This is a considerable help to the fiscal situation and the government. In addition there are the corporate bond purchases and the covered bond purchases to help the banks. The latter gets so little publicity for the 232 billion Euros on the ECB’s books. Plus we have negative interest-rates and a Euro exchange rate pushed lower.

Has monetary policy ever been so expansionary at this stage of the economic cycle?

House prices

There was some further news to warm the cockles of Mario Draghi’s heart this morning.

In Q1 2017, the prices of second-hand dwellings kept increasing: +1.9% compared to the previous quarter (provisional seasonally adjusted results). The increase is virtually similar for flats (+1.9%) and for houses (+1.8%).

Over a year, the increase in prices was confirmed and strengthened: +3.0% compared to Q1 2016 after +1.5% the quarter before.

Up until now we have seen very little house price inflation in France and whilst the rate is relatively low it does look to be on the rise which represents a clear change. If you add this to the house price rises in Germany that I analysed on the 8th of this month then the ECB will be pleased if first-time buyers will not be.


It looks as though France is in a better phase of economic growth. This is certainly needed as we look at the unemployment rate issue but there is also another factor as this from French statistics indicates.

 2016 (GDP growth unchanged, at +1.1% WDA), 2015 (−0.2 points at +1.0%) and 2014 (+0.3 points at +1.0%)

As you can see the annual rate of economic growth has been essentially 1% as we note something of a reshuffle in the timing. Indeed in spite of a better couple of quarters the current annual rate of economic growth in France is you guessed it 1%! Somehow 1% became the new normal as we wait and hope for better news as 2017 develops. Should we get that then at this stage of the cycle I fear we may then be shifting to how long can it last?!



17 thoughts on “Will 2017 see an economic rennaisance for France?

  1. Hello Shaun,

    Does that mean the French can now save their own Banks instead of asking the Greeks to sub them ?

    and despite the differences , 1% growth is just the same as ours , so a 75% top rate tax will not
    get rid of the likes of Sir Fred or any other of the deplorable “leaders” in the UK …..

    makes you think , dunnit ?


    • Hi Forbin

      Over time the French banks have been able to mostly take the hit from their ill fated ventures in Greece with as the Beatles would say ” A little help from their friends”. I was thinking as I wrote the piece that the French banks have remained under the radar and out of the media spotlight and yet there must be general issues tucked away there. After all Credit Agricole, Soc Gen and the other main banks were present in all the markets which went wrong.

  2. One thing I always wonder when unemployment in France and the UK is brought up is the issue of Tax Credits in the UK which seem to do a great job of masking employment levels. What would the UK rate be if tax credits, at a cost of £31 billion a year, didn’t exist? They don’t exist in other EU nations.

    Other nations do have welfare programs of course but rarely at such huge cost. The UK is pretty much alone in giving parents claiming to be self-employed, or working part time (12 hours needed for single parents – 24 for two parents), top ups of up to £15k a year in some cases on top of “work” income, even before housing benefit, child benefit and other programs are included. The welfare cap doesn’t apply if claiming Tax Credits too, which despite the name has absolutely nothing to do with paying tax.

    • Hi Ed and welcome to my corner of the web.

      When we compare countries there are issues with both the data and the way that it is presented. For example I was looking at the French GDP release for some per capita details and there wasn’t any. Nor was it to be found in the tables I have just re-checked. Also both the recent employment and unemployment releases do not mention self-employment.

      So if we look at your point I am sure it has been an influence but how large an influence is hard to say.

    • I’ve pondered the same question too as I used to work on Tax Credits’ predecessor Family Credit many years ago.

      It’s not just the self employed though. Most claimants were employees. I couldn’t help but notice how adept the wages departments of employers were at completing our complex forms , suggesting good training and lots of practice which led me to consider whether the relevant employers (we had a list of the usual suspects whom provided us with 80% of our work) were in fact cynically relying on family Credit as an indirect subsidy allowing them to depress the wages they paid, scooping people off the dole queue whom otherwise would have remained unemployed if there were no Family Credit to top up their “employed income” to a level marginally higher than what they received in unemployment benefit..

  3. I assume the “Product” in GDP has a specific meaning in economics that differs from the obvious,
    but perhaps for general clarity we should rename GDP to GDV, as in Valuation.

    • Hi arrbee

      Back when GDP was conceived the economy did have much more product as in tangible items than now. But the crucial element is that it only counts things which have a price so yes your valuation point is well made.

  4. Hello Shaun,

    Sorry for the 2nd post but I remembered that I posit’ed that when GDP is reported as 2% it was probably 0% ( you reminded me last week or so 😉 )

    so if its 1% perhaps the real rate is – 1% , ie negative growth ( as the word “shrink” doesn’t exist in modern economics !)

    Whats the prognosis on that ?


  5. Hi Shaun, those numbers are the same BS that the UK lives in. Print lots of money count it in pile each quarter and pretend there is more of it… heyho we are all richer! Well after all that QE then 1% growth is a poor show. In a similar vein to our UK party Politik the left and right tug-of-war in France has ensured no change whatsoever for 25 years. If Macron does pull off an effect Govt and I hope he does then there will be some ugly confrontations with myopic vested interests, it will get alot worse before it gets better. By comparison with Island Britain and Trump America though at least France does have a “crusader”, we seem to have returned to the falsity of the left and right promises and in the States the military industrial complex have brought “president trump” to heel.. Paul C.

    • Hi Paul C

      The point about so much intervention leading to so little economic growth should be shouted from the roof tops in my opinion. Then we might get a discussion about what to do next rather than more of what has not done very well.

      As to Macron I hope he will be a reformer but so far we have had lots of claimed reformers but much less reform.

  6. France is going to collapse tomorrow, or so I’ve been reading for the last 30 years at least. I get the very strong sense that nobody has a clue what’s going on. Does anyone know the effects of QE and ZIRP in an economy that can’t produce its own currency?

    Then there is another unknown quantity, Macron. It seems he plans Thatcherism lite for France and I predict severe ructions if so. I’ll always back the canny frogs to win one way they are self sufficient in food and wine! Now that’s what I call a plan.

    The usual plug for my new site and all Shaun’s readers especially welcome. https://bill40.wordpress.com/2017/05/29/where-will-the-money-come-from

    • we also buy ‘leccy off them as we made it cheaper to do so than burn coal…..


      PS: faith based currencies do often fail because of the human nature to abuse such faith , ie once your trading partners ( as a country or local tradesman/woman) loose faith in your currency then its not wanted. The classical way to do this is to print print print Zimbabwe style .

      If you are the main trading country of the world then you have much more lee-way ( it helps to have the biggest stick on the block too ) but in the end other traders can and will lose faith and start their own trade currency…..

      • I will write about inflation soon Forbin but a brief note on cause and effect. Zimbabwe had a supply shock, they destroyed productive farms and they borrowed in a foreign currency. They also trashed their institutions. Lack of supply meant inflation crept in. Lack of faith meant more currency needed for US dollars and inflation soared. Note the cause and effect. Infaltion came first, then the money printing.
        Good to see you here Mr F thanks for commenting.

  7. Hi Shaun – “Will 2017 see an economic rennaisance for France?” – renaissance no, moderate growth yes. It’s an EZ thing.

    I’ve seen the flash PMI results for France – heh heh heh. I also saw French M1 growth since January, who wrote that song “Up up and away”?

    I think this time it’s hard to read the reasoning behind the M1 growth, is it preparation for a spending boost after the election or preparation for shipping money out of the country following the election? I guess it depends on the election result.

    • Hi Noo2

      I am not sure but I do recall it being used in the Nimble bread advert back in the day which had a rather attractive girl in a hot air balloon. If we add the M1 growth to the inventory build up then this year has already seen a lot of expectation.

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