During the Euro area slow down France has mostly been able to avoid the limelight. This is because it has at least managed some economic growth at a time when Germany not always has. It may not be stellar growth but at least there has been some.
In Q2 2019, GDP in volume terms grew at the same pace as in the previous quarter: +0.3% (revised by +0.1% from the first estimate).
However there are questions going forwards which plugs into the general Euro area problem which got a further nudge on Monday.
The IHS Markit Eurozone Composite PMI® fell to
50.4 in September according to the ‘flash’ estimate,
down from 51.9 in August to signal the weakest
expansion of output across manufacturing and
services since June 2013………The survey data indicate that GDP looks set to rise by just 0.1% in the third quarter, with momentum weakening as the quarter closed.
As you can see growth is fading and may now have stopped if the PMI is any guide and this was reflected in the words of the Governor of the Bank of France in Paris yesterday.
For the past ten years, there is little doubt that ECB monetary policy under Mario Draghi’s Presidency has made a decisive contribution not only to safeguarding the euro in 2012, but also to the significant recovery of the euro area since 2013. Over this period, more than 10 million jobs have been created. Our unconventional measures are estimated to add almost 2 percentage points of growth and of inflation between 2016 and 2020.
It is revealing that no mention is made of growth right now as he concentrates on what he considers to be past glories. He has rounded the numbers up too as they are 1.5% and 1.9% respectively. Let me give him credit for one thing though which is this although I would like him to say this to the wider public as well.
Since I am talking to an audience of researchers I should of course emphasise that such numbers are subject to uncertainty.
Also raising inflation in the current environment of weak wage growth is likely to make people worse and not better off.
The situation here was better than the Euro area average but still slowed.
At 51.3 in September, the IHS Markit Flash France
Composite Output Index fell from 52.9 in August,
and pointed to the softest expansion in private sector
activity for four months.
Actually manufacturing is doing okay in grim times with readings of 49.7 and 50.3 suggesting flatlining. The real fear here was that the larger services sector is now being sucked lower by it.
However, with services firms registering their
slowest rise in activity since May, fears of negative
spill over effects from the manufacturing sector are
coming to fruition. Any intensification of such effects
would likely dampen economic growth going
This leaves me mulling the record of Markit in France as several years ago it was criticised for being too pessimistic by the French government and more recently seems to have swung the other way.
What about fiscal policy?
This did get a mention in the speech by the Governor of the Bank of France yesterday.
Failing that, a second answer is for fiscal policy to step in. Fiscal stimulus from countries with fiscal space would both stimulate aggregate demand, and, with targeted, quality investment, increase long-term growth.
The problem with that argument is that even the French run IMF could not avoid pointing out this in July.
France’s public debt has been consistently rising over the last four decades, increasing by 80 percent of GDP since the 1980s to reach close to 100 percent of GDP at end-2018. This reflects the inability of successive governments to take full advantage of good times to reverse the spending increases undertaken during downturns.
Actually some of the IMF suggestions look rather chilling and perhaps in Orwellian language.
rationalizing spending on medical products and hospital services; improving the allocation of resources in education
Also and somewhat typically the IMF has missed one change in the situation which is that at present France is being paid to borrow. It’s ten-year yield went negative at the beginning of July and has mostly been there since. As I type this it is -0.32%. It still has to pay a little for longer terms ( the thirty-year is 0.48%) but as you can see not much.
So the situation is that France does have quite a lot of relatively expensive debt from the past but could borrow now very cheaply if it chose to do so.
Whilst he s referring to macroprudential policy it is hard not to have a wry smile at this from the Governor of the Bank of France.
To start with, as of today, our toolkit is very much bank-centric.
Especially when he add this.
We are making some progress to extend macroprudential policy beyond the banking sector.
Returning to the banks they are just like elsewhere.
PARIS (Reuters) – Societe Generale (SOGN.PA) plans to cut 530 jobs in France by 2023, CGT union said in a statement.
Of course BNP Paribas has been taking some brokerage business and employees from Deutsche Bank although it has not be a complete success according to financemagnate.com.
Deutsche’s clients will receive letters explaining how the transfer will work. However, some of them have already moved to competitors such as Barclays, which has won roughly $20 billion in prime brokerage balances.
In a way the French banks have used Deutsche Bank as a shield. But many of the same questions are in existence here. How are they going to make sustained profits in a world of not much economic growth and negative interest-rates?
This is the real achilles heel of the French economy. From Insee
The ILO unemployment rate decreased by 0.2 points on average in Q2 2019, after a 0.1 points fall in the first quarter. It stood at 8.5% of the labour force in France (excluding Mayotte), 0.6 points below its Q2 2018 level and its lowest level since early 2009.
Whilst the falls are welcome it is the level of unemployment and the fact it is only now approaching the pre credit crunch levels which are the issue as well as this.
Over the quarter, the employment rate among the youth diminished (−0.3 points),
Whilst the unemployment rate for youth fell by 0.6% to 18.6% it is still high and the falling employment rate is not the best portent for the future.
So far the economy of France has managed to bumble on and unlike the UK and Germany avoided any quarterly contractions in economic output. If you look at this morning’s official survey then apparently the only way is up baby.
In September 2019, households’ confidence in the economic situation has increased for the ninth consecutive month. At 104, the synthetic index remains above its long-term average (100), reaching its highest level since January 2018.
Perhaps the fall in unemployment has helped and a small rise in real wages. The latter are hard to interpret as a change at the opening of the year distorted the numbers.
firms might pay a special bonus for purchasing power (PEPA) in the first quarter of 2019, to employees earning less than 3 times the minimal wage.
According to the official survey published yesterday businesses are becoming more optimistic too.
In September 2019, the business climate has gained one point, compared to August. The composite indicator, compiled from the answers of business managers in the main sectors, stands at 106, above its long-term mean (100)
So there you have it everything except for the official surveys points downwards. In their defence the official surveys have been around for a long time. So let me leave you with some trolling by the Bank of France monthly review.
French economic growth has settled into a fairly stable pace since mid-2018 of between 1.2% and 1.4% year-on-year . France has thus demonstrated greater resilience than other euro area economies, particularly Germany, where year-on-year growth only amounted to 0.4% in mid-2019. This growth rate should continue over the coming quarters: based on Banque de France business surveys published on 9 September, we expect quarter-on-quarter GDP growth in the third quarter of 2019 of 0.3%.
Rethinking The Dollar
I did an interview for this website. Apologies if you have any issues with the sound as the technology failed us a little and we had to switch from my laptop to my tablet.