France: Here comes the rooster

Country Report

France entered a new growth cycle in 2015 after growth reached +0.4% on average in the previous three years.  Yet performance in every year from 2015 to 2018 has been – or is expected to be – similar. No dramatic acceleration is in sight. 

Volatility is explained by sectoral specificities. For example, in 2016, agricultural production tumbled by -6% due to bad weather and subtracted -0.2pp of the country’s GDP growth. 

Thus, growth is roughly stable. The drivers may change, but not the performance.

Hence, despite a good cyclical juncture, growth remains far below what is needed to stabilize the public debt ratio and to rapidly close the gaps caused by the crises:

- France’s economy lost volumes: (i) Unemployment peaked in 2015 at 10.4% and only marginally decreased afterward; (ii) Corporate insolvencies (see next page) were up +49% from pre-crisis lows as of end 2016.

- What you put (invest) is what you get (income): (i) Corporate investment was only marginally higher (+3%) from pre-crisis levels in real terms (end of 2016).  (ii) GDP per capita (see chart) in 2016 roughly equalled its 2007 level. This entails stalled income in real terms. Lower aggregate income level growth also means that both household wage growth and corporate profit margins are lower in terms of value.

People perceive such gaps. The result is discontent, which cannot be offset by recent cyclical improvements.