Today gives us an opportunity to take a closer look at one of the running themes of this website which is the economy of France. It also gives an opportunity to look at the other side of the coin as its performance in 2017 so far has exceeded that of the UK. Indeed if you believe the media it is Usain Bolt to our Eddie the Eagle. So let us go straight to this morning’s economic growth release.
In Q3 2017, gross domestic product (GDP) in volume terms* kept increasing: +0.5%, after +0.6% in Q2……GDP growth estimate for Q2 2017 is slightly revised upward (+0.1 points), in particular with the update of seasonal adjustment coefficients.
There are two clear changes here for France and the first is simply the higher numbers seen. The next is the stability of them as France did produce quarterly growth at this sort of level but then always fell back sometimes substantially in subsequent quarters. This time around France has gone 0.6%,0.5%,0.6% and now 0.5% which is well within any margins of measurement error. This has led to this.
In comparison with Q3 2016, GDP rose by 2.2%; such a growth rate had not been observed since 2011.
This is good news but it does come with perspective as it reminds us how poorly France performed pre 2017 and in particular how its economic growth was knocked back by the Euro area crisis. It did grow but mostly at a crawl.
The good news is that investment remains strong.
total gross fixed capital formation (GFCF) remained dynamic (+0.8% after +1.0%).
However the economic dream of investment and net trade rising stalled somewhat.
The foreign trade balance contributed negatively to GDP growth (−0.6 points after +0.6 points): imports accelerated sharply (+2.5% after +0.2%) while exports decelerated significantly (+0.7% after +2.3%).
In fact economic growth relied mostly on consumption and rises in inventories.
Household consumption expenditure slightly accelerated (+0.5% after +0.3%) …….changes in inventories contributed positively to GDP growth (+0.5 points after −0.5 points).
The inventory position can be read two ways. The positive view is that it is in anticipation of further economic expansion and the less positive one is that it signals some slowing.
Another factor we may need to watch is the one below as the UK is far from alone in seeing car registrations dip in recent months.
In particular, it (exports) fell back in transport equipment (−0.5% after +6.2%).
I also note that France is also shifting towards a services based economy.
In August 2017, output increased sharply again in services (+1.0% after +1.3% in July).
The official survey is still good ( above 100) albeit not quite as good as previously.
In October 2017, the business climate has weakened slightly after a steady improvement for a year. The composite indicator, compiled from the answers of business managers in the main sectors, has lost one point (109) after eight months of rise.
This leads to welcome hopes for a troubled area of the French economy.
In October 2017, the employment climate has risen for the second consecutive month…….The associated composite indicator has gained two points to 109, clearly above its long-term mean.
The PMI ( Purchasing Managers Index) compiled by Markit could hardly be much more bullish.
Flash France Composite Output Index(1) at 57.5 in October (77-month high) ……According to latest flash data, the resurgence in the French private sector showed no sign of abating at the start of the fourth quarter
They were even more bullish on employment prospects.
Buoyed by strong client demand, private sector firms continued to take on additional staff members in October, extending the latest period of job creation to 12 months. Moreover, the rate of growth was the most marked in just shy of ten-anda-half years (May 2007).
This has been the Achilles heel of the French economy for some time as its sclerotic rate of economic growth has meant there has been little progress in reducing unemployment.
In Q2 2017, the ILO unemployment rate in metropolitan France decreased slightly, by 0.1 percentage points. The employment rate and the activity rate increased by 0.5 percentage points. The unemployment rate in France stood at 9.5% of active population in Q2 2017.
Indeed some countries have unemployment rates similar to the long-term unemployment rate in France.
The long-term unemployment rate stood at 4.0% of active population in Q2 2017
Youth unemployment disappointingly rose to 22.7% in the quarter.
So there is plenty of work for the improved economic situation to do in this area and the survey results indicate that it is ongoing. However we do have a more up to date number from Eurostat this morning showing the unemployment rate rising from 9.6% in June to 9.7% in July, August and September.
The good news is that there is not much of this to be found in France.
Over a year, the Consumer Price Index (CPI) should increase by 1.1% in October 2017, after +1.0% in the previous month, according to the provisional estimate made at the end of the month.
One worrying area is this “an acceleration in food prices ” which were 4.5% higher than a year before. How much of that is due to the issue pointed out by Bloomberg below is not specified.
France’s much-loved croissant au beurre has run up against the forces of global markets.
Finding butter for the breakfast staple has become a challenge across France. Soaring global demand and falling supplies have boosted butter prices, and with French supermarkets unwilling to pay more for the dairy product, producers are taking their wares across the border. That has left the French, the world’s biggest per-capita consumers of butter, short of a key ingredient for their sauces and tarts.
We do know that prices have surged at the wholesale level.
Global butter prices have almost tripled to 7,000 euros ($8,144) a ton from 2,500 euros in 2016, according to Agritel, an Paris-based farming consultancy.
This year has seen a welcome return to form for the French economy. Let us hope that it can continue it as it has seen a weak run. Todays data release shows us that GDP ( base 2010) was at 511.1 billion Euros in the first quarter of 2012 but only rose by 18.4 billion Euros to the third quarter of 2016 before rising by 11.7 billion in the next year. France did not suffer as directly from the Euro area crisis as some countries but it was affected. One impact of that was the way that its national debt to GDP ratio has risen to 99.2% so it will be hoping that the current growth spurt stops it reaching and then moves it away from 100%.
The European Central Bank has put its shoulder to the wheel in terms of monetary policy which has helped France in various ways. The large purchases of French government bonds which total 345.6 billion Euros have helped the public finances by reducing the cost of debt. Also the advent of an official interest-rate which is negative ( deposit rate -0.4%) indicates a very easy monetary policy. The catch here is how and we should add if the ECB can reverse course as we see that a Euro area which is now doing well ( this morning annual GDP growth has been announced at 2.5%) has a negative official interest-rate and ongoing asset purchases which are only slowly being reduced. After all monetary policy has leads and lags meaning that in general it needs to be set for around 18 months time rather than now.
Moving onto comparing with the UK then the quarterly growth rate is only marginally higher but the annual one is much better for France. Prospects for the immediate future look good and maybe there is an area where we are becoming more similar.
Overall, house prices increased by 3.5% yo-y in Q2 2017, after +2.7% in Q1 2017.
Happy Halloween to you.