How is the economy of France doing?

It is time for us once again to nip across the Channel of if you prefer La Manche and see what is happening in the French economy. One of the oddities of the credit crunch era is how the UK and French economies have been so out of concert and rhythm. Yes both were hit by the initial impact but then France began to recover whilst the UK struggled. But then the Euro area crisis dragged France down whilst the UK pushed ahead from around 2013 . Now we may be experiencing another switch over so let us take a look.

France GDP

If we start with the economic output as measured by Gross Domestic Product or GDP then Insee told us this on Tuesday.

In Q4 2017, GDP in volume terms* increased again: +0.6%, after +0.5% in Q3. On average over the year, GDP accelerated markedly: +1.9% after +1.1% in 2016.

We can quickly see that it was both a better quarter and a better second half to the year meaning that 2017 was a fair bit better than 2016. This matters in itself but also because France had previously looked like it had got what you might call the Portuguese or Italian disease where so often even in what should be good years the economy only manages to grow by around 1%. Or if we one of the phrases of Bank of England Governor Mark Carney France had looked nowhere near “escape velocity” but now is building up speed.

Economists will like a break-down which includes both higher investment and what used to be badged as export-led growth.

Total gross fixed capital formation (GFCF) accelerated
slightly (+1.1% after +0.9%) while household consumption
expenditure slowed down (+0.3% after +0.6%)…….Foreign trade balance contributed positively to GDP
growth (+0.6 points after −0.5 points): exports accelerated
markedly (+2.6% after +1.1%) while imports slowed down
sharply (+0.7% after +2.4%).

A feature of this has been something we have also seen in the UK which is an improvement in the manufacturing sector.

In Q4 2017, total production accelerated slightly in Q4
(+0.8% after +0.7%), mainly due to manufactury industry
(+1.5% after +0.8%)……..On average over the year, total production sped up (+2.3% after +0.9%), in particular in manufacturing industry (+2.0% after +0.8%) and in construction.

A difference is to be seen in the construction sector which grew by 2.4% in France in 2017 whereas the UK construction sector has seen a 9 month recession. There is a hint of slowing in France as unlike the overall economy the construction sector slowed but it continued to grow.

Before we move on we need to note that the trade position for the year was not as good as the last quarter because of rising imports.

On average over the year, exports considerably accelerated
(+3.5% after +1.9% in 2016) while imports progressed
virtually at the same pace than in 2016 (+4.3%
after +4.2%).

Looking ahead

The various business surveys are positive with this morning’s being especially so.

French manufacturing sector growth remained
elevated at the start of 2018, pulling back only
marginally from December’s near 17-and-a-half
year peak. ( Markit PMI )

Even the higher value for the Euro on the foreign exchanges has done little so far to reduce the upbeat view.

Goods-producers continued to benefit from strong
demand conditions in both domestic and foreign
markets, with the rates of expansion in total new
orders and new export orders among the sharpest
in the survey history.

Also there was good news for a still troubling issue.

In turn, firms took on additional workers to enhance operating capacity and boost output.

This added to the picture provided in the latter part of January for the overall economy.

The French private sector economy started 2018
where it left off last year, with the headline flash
composite output PMI figure remaining among the
highest recorded in the survey’s near 20-year
history.

Also more hopeful news for the unemployed.

A sharp pick-up in client demand – indeed the
strongest recorded by the PMI in over six-and-ahalf
years – encouraged a further sharp round of
job creation.

As you can see the official forecast for the early part of 2018 is upbeat too.

In January 2018, the business climate has faltered slightly after having reached its highest level for ten years last December. The composite indicator, compiled from the answers of business managers in the main sectors, has lost two points. Nevertheless, at 110, it is still well above its long-term mean (100).

Another type of boost?

From the International Business Times.

France will include sales of illegal drugs in its gross domestic product (GDP) calculations.

The Insee statistics agency made the announcement as part of a pan-European effort for nation states to include the sales of drugs in their economic growth figures.

So er higher and higher but France will not walk this way so far at least.

Unlike the Dutch, France has ruled out including prostitution in the figures, saying that it cannot always be verified whether a sex worker has provided consent.

True I guess but a more fundamental issue is whether we have any real idea of the numbers as let’s face it these are areas where people are perhaps most likely to not tell the truth.

As to how much? There is this.

The head of Insee’s national accounts, Ronan Mahieu, downplayed the impact that the new calculations could have on French GDP figures.

He told the Local that France’s current GDP of €2.2tn (£1.9tn) would only increase by “a few billion euros”.

I have to confess that this bit was a little mind-boggling.

French revenues for illegal drug use will be based upon figures that are provided to Insee’s economics department by specialists.

Should they ever have to advertise for such “specialists” the internet may break!

Labour market

Here there have been improvements as in the year to December the unemployment rate had fallen from 9.9% to 9.2%. The catch was that it is still above the Euro area average of 8.7% and well above the 7.3% of the European Union.

If we switch to employment we see that whilst things are continuing to improve as of the last data set the state of play is not as positive from this leading indicator as the ones above.

In Q3 2017, net payroll job creation reached 44,500,
that is an increase of +0.2% after an increase of +0.4%
in the previous quarter. The payroll employment
increased by 49,900 in the private sector while it
decreased by 5,400 in the public sector.

Comment

As we make our journey through the French economy it is nice to be able to record better times. How much good news that provides to the UK I am not so sure as whilst it should be helpful to us via trade we have been out of phase with each other for a while now. A burst of economic growth will help France with this issue.

At the end of Q3 2017, the Maastricht debt reached €2,226.1 billion, a €5.5 billion decrease in comparison to Q2 2017. It accounted for 98.1% of gross domestic product (GDP), 1.0 point lower than last quarter. The net public debt declined more slightly (€ −1.5 billion).

But the major difference with the UK is the way that the employment and unemployment situations have diverged. Much of the difference but not all has been in lower paid jobs but jobs none the less. Meanwhile there is an area where the French seem to be getting more like the British.

In Q3 2017, the rise of prices of second-hand dwellings amplified: +1.6% compared to the previous quarter (provisional seasonally adjusted results), after +0.7%. As observed since the end of 2016, the increase is more important for flats (+1.9%) than for houses (+1.4%).

Over a year, the increase in prices continued to accelerate: +3.9% compared to Q3 2016, after +3.1% the quarter before.

If there is a catch it is around the need for such an expansionary monetary policy with negative interest-rates and ongoing QE at a time of accelerating growth.