Situation of the economy

The Minister of Finance and Public Accounts and the Minister of the Economy, Industry and the Digital Sector made a statement on the situation of the economy.

The latest economic developments confirm the spread of the economic recovery to the different sectors of activity in France, whether it be the dynamism of industrial production, the solidity of household consumption or the recovery in the construction sector.

This momentum, under way for the past year, is set to continue over the coming quarters, and the government’s growth target for this year is confirmed by the mid-year growth figure, which already stands at 0.9%. In its latest bulletin, INSEE [National Institute of Statistics and Economic Studies] forecasts an acceleration of economic activity in the second half of the year, up 0.2% in the third quarter, then up 0.2% in the fourth quarter. In terms of annual averages, the different institutes anticipate growth equal to or above 1% this year, followed by an acceleration next year.

The international context is not exempt from risks, as shown by the downward revisions in the latest outlook by the International Monetary Fund (IMF), linked to the slowdown in economic activity in China and emerging countries weakened by the reduction in commodity prices and the volatility of capital flows. These forecasts, however, remain consistent with global growth sustained by the industrialized countries, including the Euro Area, which seems relatively unexposed to the situation of the emerging countries. The government’s growth forecasts for 2015 and 2016 – 1% and 1.5% respectively – are thus consistent with the latest publications by the National Institute of Statistics and Economic Studies, the Organization for Economic Cooperation and Development (OECD) and the IMF, which take into account this slowdown in the emerging countries.

The latest indicators have been on the right track. The strong resurgence of manufacturing production in August (up 2.2%) more than compensates for the reduction observed in July and reflects the indications given in surveys of company directors, for example with personal production expectations reaching levels unmatched since 2011. With the rolling out of the Competitiveness and Employment Tax Credit (CICE) and the Responsibility and Solidarity Pact, companies’ margins have increased by nearly two points in a year, regaining two-thirds of the ground lost since the crisis. In this context, investment by companies, which has picked up again since the beginning of the year (at least 1% growth), should speed up in the coming months, sustained by solid demand prospects, favourable finance conditions and the increased depreciation measure (1). The “Industry of the Future” plan is also helping support industrial investments. Measures to support businesses’ competitiveness, in a context of oil prices stabilizing at a very low level, are leading to a clear improvement in the trade deficit, which in 2015 should return to its pre-crisis level, having thus been halved since its 2011 peak.

The economic recovery is drawing on the strong momentum in household consumption, sustained by increases in purchasing power that are being helped by income tax reductions, which, for the current year, have taken effect in recent weeks. In September, household confidence thus reached its highest level since the end of 2007.

Since the beginning of the year, the French economy has been creating jobs again.
This trend should increase further, enabling unemployment to fall. The labour cost reductions enabled by the CICE and the Responsibility and Solidarity Pact – which are continuing to gain in strength – should contribute to this, as should the reforms conducted, particularly the Job Security Act, the Growth and Economic Activity Act and the Social Dialogue and Employment Act. This momentum for reform will continue in the coming months, and the government is also playing a fully active role in ensuring the acts passed are fully implemented operationally, with their variety of implementing legislation./.

(1) Tax incentive for company investments, adopted by the Senate in April 2015.