France: The ties that bind

5 min

In France, some ties are progressively darkening the good economic momentum, weighing on private sector confidence. First, the difficulties to hire people when the economy is booming have created bottlenecks in the corporate sector. For example, the construction sector has order books above seven months, but 63% of the businesses face difficulties to hire. Second, households have lost some faith since they have felt their financial situation deteriorating. Household confidence landed and the savings rate was still high in 2017 (14.2%, after 14% in 2016) despite a visible decline in unemployment. One cause is higher inflation. It weighed on overall household purchasing power during Q4 2017 (+0.2% q/q, after +0.5% q/q in Q3). Moreover, tax increases in Q1 worsened their perception (higher tax on gasoline, increase of social contribution – CSG – on pensions). Third, corporates margins have been stable at below pre-crisis levels since mid-2015. In 2017, they stood at an average 31.7% (33.5% in Q1 2008). Services sectors are particularly feeling the pressure (26.5% for retail and 27.1% for business services). A lower tax burden would certainly help.