Robot portrait of a French economy in remission

THE ECO SCAN – INSEE has published its 2015 annual report on the French economy. Sluggish growth, convalescent consumption, investments and foreign trade in small form, greedy public spending … Le Figaro deciphers, in eight key points, the economic health of our country.

Every year, INSEE takes a photograph of the French economy. The institute published its 2015 edition this night, which covers the final figures for 2014. Here is, in eight points, the state of economic health of France, seven years after the crisis.

• Very weak French growth

Contrary to what was initially believed, French growth increased by -only- 0.2% in 2014. A figure that was revised by INSEE last month, after having initially been estimated to be on the rise. 0.4%. In the first quarter, France saw its GDP grow by 0.6%, which had not happened since the summer of 2013. A welcome rebound a priori, but in fact, we must remain cautious: first because that it is a quarterly figure which does not allow us to say that the recovery is installed, then because these quarterly figures are often revised (the proof for the 4th quarter of 2014), and finally because the main drivers of this rebound come from external factors (decline of the euro, low oil prices and government borrowing rates at the bottom). The foundations for a solid recovery are not yet well established.

• Purchasing power is finally recovering

For the first time since 2011,. It is stimulated both by a relatively strong increase in nominal wages, by a moderate increase in taxes and contributions after several years of strong increases, and especially by the sharp slowdown in price increases (inflation of 0.5% in 2014 ). But we are far from the pre-crisis progressions (+ 2.3% in 2007) and all French people are not in the same boat. Since the crisis, the highest socio-professional categories have benefited from higher wage increases than the poorest workers.

• Not enough to really boost consumption

The French remain traumatized by the 2008 crisis: with this money, they have chosen to save more. For the first time since 2008, at 15.1%, ie its pre-crisis level. They also consumed more (+ 0.6% in 2014 against + 0.4% in 2013 and -0.3% in 2012), but at a rate still much lower than that before the crisis (+2.2 % between 2000 and 2007). Seven years after the crisis, the French still choose to cut or postpone certain purchases, such as clothing, leisure or transport. Because basic needs continue to take a larger part in their budget. Housing now represents a quarter of a household’s expenditure. While rents increase less (+ 2.2% after + 2.5%), they continue to increase faster. Note, however: the energy bill fell sharply in 2014, thanks to expensive oil and also to particularly mild weather in 2014: heating costs fell by more than 10%.

• A high unemployment rate, which will continue to rise

After two years of increase in 2012 and 2013, the unemployment rate was almost stable as an annual average in 2014, at 10.2%. But during 2014, it increased at the end of the year, to 10.4% at the end of 2014. And INSEE expects it to rise further, to 10.6% in June 2015, reaching an unprecedented level. for almost 20 years, at the end of 1997.

• France still has big problems with its foreign trade

Since 2005, France’s external balance (ie the difference between its exports and its imports) has been in deficit. Between 2002 and 2008, the fall is vertiginous (the fault of the very high oil prices over the period). Since then, the external deficit has been trying to stabilize. But, in 2014, it still reached … 51.2 billion euros! Exports accelerated (+ 2.4% in volume after + 1.7%) but increased less than world demand addressed to France, reflecting a slight loss of market share in world trade. Above all, imports – still in volume – jumped (+ 3.8% after + 1.7%) and grew much faster than domestic demand.

• Construction, a black spot for investment in France

In fact, it is construction (-3.4% in 2014 after -0.6% in 2013) which weighs down the performance of investment in France. Not only are the budgets of local authorities increasingly constrained, but 2014 was also marked by municipal elections, which still imply a freeze on investment projects in housing and public works. Excluding construction, investments increased (by 0.8% after -0.6%). All in all, investment fell again by 1.2% in 2014, compared to -0.6% the previous year, despite positive signs on corporate margins. The blockage comes from the lack of confidence of business leaders who are always hesitant to launch new projects, and to hire.

• High public expenditure compared to our neighbors

Yes, the French public deficit narrowed in 2014, at least in relation to GDP. But very slightly: 4% of GDP in 2014, against 4.1% in 2013. Public expenditure (+0.5 point) has thus increased slightly less than revenue (+0.6 point). In fact, it is the CICE (Tax Credit for Competitiveness and Employment) which explains most of the increase in public spending. If we remove the impact of tax credits in public spending, it is almost stable, as a proportion of GDP. Despite everything, France continues to post public expenditure (relative to GDP) “particularly high compared to European countries of comparable size: almost 11 points more in 2013 than the average calculated for Germany, Spain, France. ‘Italy and the United Kingdom’. On the public revenue side, they increased (+ 1.9% in 2014) less quickly than in 2013 (+ 3.2%), but remain more dynamic than GDP (0.8% in value).

• A public debt of 95.6% of the GDP

Public debt stood at 2,037 billion euros at the end of 2014. It represents 95.6% of the GDP, after 92.3% at the end of 2013. In other words, the debt of France – which is the result of all the annual public deficits recorded by France since 1974 without interruption – is now almost equivalent to the wealth that it creates over a year. Debt is expected to increase further in 2015, since France’s accounts are not ready to return to balance. France, to finance itself, continues to borrow. In so-called bond markets, where rates were incredibly low in 2014 (rates close to zero, and even sometimes negative!). But they have bounced back significantly in recent weeks. The 10-year rate is over 1.3%.