France

Bumpy growth

AA1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

The country risk assessments are your North Star metrics to make the right decision for your business and understand the risks in international trade. We have always the best solution for your needs

GDP USD2829.192bn (World ranking 6, World Bank 2014)
Population 66.2mn (World ranking 21, World Bank 2014)
Form of state Republic
Head of state Emmanuel Macron (President of the Republic)
Next elections 2017, presidential and legislative (National Assembly)
  • Dynamic demographics
  • Infrastructures (e.g., transport) and public services are of high quality
  • Many international corporate giants and a growing presence of technological start-ups (‘French tech’)
  • Diversified economy
  • Tourism revenues
  • Quality education system
  • Dual labour market: Insiders vs. outsiders, leading to structurally high unemployment rate
  • Low employment rate among youth and seniors
  • Growing inequalities in spite of costly redistribution
  • Rapid deindustrialisation and low competitiveness of manufacturing firms
  • Lack of large SMEs that can bear the sunk costs associated with innovation and exports
  • Rent-based economy (e.g., retail distribution, taxis)
  • Elevated level of public spending and questionable efficiency

Growing unbalanced

After a lost decade (from 2008 to 2016), France renewed with higher growth levels in 2017 (+2.3%). However, despite this good surprise many bottlenecks were not solved during that period and the growth slowdown observed in 2018 (+1.5%) showed how pervasive these weaknesses are.

France has cumulated four overarching imbalances during the last decade. Each domestic sector has its own imbalances, weighing on the whole economy: A supersized government (fiscal spending reached 56.5% of GDP in 2017), an indebted corporate sector (74% of GDP) and high saving households (about 15% of their disposable income per year). The fourth imbalance is at the country level, with a sizeable trade balance deficit (EUR 60 bn in 2018).

 

 

What does that mean for corporates?

It does not mean that France is unable to grow. Corporate investment continued to grow, even in 2018, since French corporates prepare their digitalization. Their investment in the digital sector increased by +7bn each year in 2017 and 2018. However, since demand disappointed and higher oil prices took their toll on companies’ profits, corporate margins weakened to a new low (31.5% in 2018Q2) and debt had to increase in order to cope with financing needs.

Last but not least, business insolvencies made a U-turn in 2018. During the growth period in 2017, corporates increased their payment terms (Days of Sales Outstanding increased by +2 days to 74 days of turnovers) and became cash constrained in 2018, since turnover growth missed their forecast and their customers’ payment behavior deteriorated. Insolvencies increased by +2.1% from May 2018 to October 2018 and should continue to rise. At end-19, insolvencies should reach a level +5.5% above what was observed in May 2018 and about +15% higher than the level observed in 2007.

 

 

Corporate debt has increased

The cyclical weakness was particularly strong for all sectors driven by household spending. Higher oil prices and tax hikes hit household purchasing power, and private consumption weakened markedly. Moreover, uncertainty about policy support and increasing prices implied a marked slowdown of residential investment. 2019 should not provide a relief since household residential investment is expected to grow by +0%. As a result, the construction sector was one of the worst impacted sectors by the U-turn in insolvencies.

Overall, the French growth potential has recovered from the very low level observed until 2015 (about 1%). In our view, it is now about +1.5%. However, the level of imbalances exhibited by France is still high and any growth acceleration has an impact in terms of risk-taking. For example, the consolidation of public finance made some progress, but it involved a cost (subtracting -0.1pp to overall GDP growth as a result of spending cuts) and did not deliver enough in terms of fiscal deficit to allow for more tax cuts, particularly for corporates. As a result, corporate debt increased by +2.3pp in 2018 to 74% of GDP, as companies resorted to debt issuance to finance their needs.

As a fiscal stimulus was announced in December 2018 to rein in social protests, the fiscal consolidation and reform paces will likely slow in the next quarters. As a result of lower inflation and the fiscal stimulus, we expect growth to recover in 2019 (+1.7%) but to slow down again in 2020 (+1.6%).

 

 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Germany 15%
1
18% Germany
United States 8%
2
9% Belgium
Italy 7%
3
8% Italy
Spain 7%
4
8% China
United Kingdom 7%
5
7% Spain

Trade structure by product

(% of total)

Exports Rank Imports
Other transport equipment 12%
1
10% Road vehicles
Road vehicles 9%
2
6% Other transport equipment
Medicinal and pharmaceutical products 6%
3
6% Petroleum, petroleum products and related materials
Electrical machinery, apparatus and appliances, n.e.s. 6%
4
6% Electrical machinery, apparatus and appliances, n.e.s.
Other industrial machinery and parts 5%
5
5% Miscellaneous manufactured articles, n.e.s.

The payment behavior of domestic companies is good but does have some margin for improvement as the average DSO does not match the standards set forth in recent regulations stringently transposing EU payment standards into domestic law.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

French courts are fairly efficient in dealing with disputes in a timely manner.

The law in France provides for a complete set of restructuring proceedings when a company is facing financial difficulties, however, when liquidation proceedings are opended, the chances of collecting debts are very low.

Download the entire collection complexity PDF:

Collection complextiy France

pdf | 8.9 MB

Contact

Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

Contact Stéphane Colliac

Senior Economist for France and Africa

stephane.colliac@eulerhermes.com 

Each step at your side

View our solution