Analyses & Studies

France Economic Policy 23 May

Macroeconomic outlook


·      According provisional estimates by the INSEE published on 9 May, GDP would grow by about 0.25% in Q2-2022 compared to Q1-22. In terms of annual growth, the mid-year gain for 2022 would be +2.6%, following +7% over 2021 as a whole.

·      The French Central Bank estimates GDP to grow by 0.2% in Q2-22, supported by a strong recovery in services, while industry and construction are reeling from the surge in raw material costs (11.05). The French Central Bank maintains its 2022 growth forecast at 2.8% (next forecast due 21 June).

·      The French Government maintains its 4% growth forecast for 2022.

·      The European Commission Spring Forecast sets Real GDP growth at 3.1% in 2022 and 1.8% in 2023 (unchanged from the winter 2022 Interim Forecast, February 2022). By way of comparison, Real GDP growth in both the EU and the euro area is now expected at 2.7% in 2022 and 2.3% in 2023, down from 4.0% and 2.8% (2.7% in the euro area), respectively, in the Winter 2022 interim Forecast.


·      According to the INSEE’s provisional estimates, YOY inflation could reach between 5 and 5.5% in June 2022. Core inflation in April is estimated at 3% YOY, and could rise to 3.5% in June. In detail, the INSEE estimates a 6% increase in food prices YOY in June and around 3% for manufactured goods and services. The YOY increase in energy prices could decrease somewhat due to a "base effect” albeit remaining above 25%.

·      The French Central Bank estimates that inflation should begin to fall in early 2023, depending on the evolution of energy prices, with a view to returning to 2% inflation by 2024.

·      The European Commission Spring Forecast sets inflation at 4.9% in 2022 and at 3.1% in 2023 (unchanged from the winter 2022 Interim Forecast, February 2022). Inflation in the euro area is projected at 6.1% in 2022, before falling to 2.7% in 2023.

·      Allianz Trade estimates inflation will reach 4.3% in 2022. The INSEE estimates inflation could reach 5.2% in May (up from 4.8% in April).


·      Unemployment currently stands at 7.4% (Q4-21) according to the INSEE. The next update is due on 17 May 2022.

·      Employment in the private sector rose by 0.3% by 0.3% between the end of December 2021 and the end of March 2022, according to the INSEE. In total, 66,100 additional jobs in Q1-22 – less than half the number of jobs created in the Q4-2021, but much more than the 15,000 net jobs forecasted. This forecast was based on GDP growth of 0.3%.

·      The European Commission Spring Forecast estimates the rate of unemployment at 7.6% in 2022 and 2023.

Trade and Services

·      According to the French Customs, the French external trade deficit widened by €31bn in Q1-22 (9.05).

·      According to the French Central Bank, the French services balance is in surplus. In Q1-22 (13.05), French services generated a surplus of €16 billion, equivalent to half of the surplus in 2019.

Climate, Energy and Employment: Challenges ahead for Prime Minister Borne

Media focus on the challenges that lie ahead for the newly appointed Prime Minister Élisabeth Borne. For Le Figarothe current economic climate will make the new Prime Minister’s job even harder. Le Monde wonders whether the Prime Minister will have sufficient means pursue the ecological transition of the French economy and society. In Les Echos’ view, employment, climate and energy will be the three main challenges for the new Premier.

Despite a difficult economic context, employment remains buoyant as the rate of unemployment continued to fall in the first quarter of the year, by around 0.1 points. It currently stands at 7.3% of the active population (2.2 million people). Nonetheless, meeting the objective set by President Macron during his campaign, namely to reduce unemployment by 2 points to 5% within five years will be no easy feat. For Les Echosthis implies improving youth and senior employment. The unemployment rate for 15-24 year olds has fallen dramatically since Covid, from an average of 21.5% in the last three months of 2019 to 16.3%. This is due to an increase in apprenticeship schemes under the effect of the 2018 Pénicaud reform (former Employment Minister Muriel Pénicaud), generous hiring bonuses of the recovery plan and a very favourable economic climate. The unemployment rate for 50-64 year olds fell by by 1.2 points over President Macron’s first term. The government wants to overhaul the end-of-career schemes as part of the contested forthcoming pension reform. The government has invested €7 billion, since 2017 in upskilling for the long-term unemployed. If recruitment levels remain high, the government could also complete its unemployment insurance reform. The Borne government will therefore have to skillfully manage the exit from the "whatever it takes" in order not to break the momentum.

Turning to the climate and environment, Les Echos warns that the Prime Minister will have to “step up immediately” in order to face key challenges in this area, namely securing green funding under the 2023 Budget Bill, the Green Financing Bill, the Energy-Climate programming Bill, and presenting the new version of the CAP to the EU. The Budget bill, up for debate in the autumn, must include an additional €10 billion per year to finance the energy transition (energy-efficient housing and low-carbon mobility). Passing the Green Financing Bill will require a majority at the National Assembly; notes the paper, as it will enable the government to secure necessary financing over the five-year term. The challenge here is to give visibility to companies ready to invest in zero-carbon technologies, as well as to households wishing to renovate their homes and to farmers interested in developing renewable energy on their farms. The Energy-Climate programming bill, due in 2023, will be “absolutely decisive” in reducing C02 emissions, adds the paper. It aims to align, sector by sector, France with the EU objective of reducing C02 emissions by 55% by 2030 and achieving carbon neutrality in 2050. This law will be the starting point for the development of a new version of each of the three roadmaps that guide France towards its climate "targets": the law carbon strategy, the national plan for adaptation to climate change and the multiannual energy programme. The latter will define the development path for renewable energies and the evolution of the share of nuclear power over the period 2024-2033. Under the leadership of the Prime Minister, France will have to provide Brussels with a modified version of France's national strategic plan for the new CAP as soon as possible. The paper recalls that the Commission has received France’s plan with strong criticism, deeming that it "only partially supports the ecological transition of the agricultural and forestry sectors". The paper notes that the new CAP comes into force in 2023.

According to Le Mondethere is a “strong probability” that a general secretariat for ecological planning will be created, directly under the responsibility of the Prime Minister’s office. Energy would become independent of the ecological transition and the latter, which would become "planning", would be implemented as close as possible to the territories, probably taking over the current Ministry of Territorial Cohesion. Two ministers, one in charge of energy planning and the other of territorial ecological planning, will report directly to the Prime Minister, reports Les Echos. The paper expects the Prime Minister to appoint a new government in "the coming days", with the appointment of “a first team on key themes” followed by the appointment of possible secretaries of state, after the second round of the legislative elections on 19 June. Describing her as a “pragmatic ecologist”, Le Monde consider her wealth of experience in government and “on the field” as an advantage. Borne was former Prefect of Poitou-Charentes and Chief of Staff of Ségolène Royal, former Environment Minister for two years.

Spending Power: the priority for President Macron’s new mandate

As the French economy continues to face the impact of the war in Ukraine and the disruptions caused by lockdowns in China, and with the legislative elections approaching (12 and 19 June), the press and media focus on how the President (and his future government) will address the challenge of rampant inflation and fragile spending power. During the Cabinet Press Conference of the outgoing government on 11 May, government spokesperson Gabriel Attal recalled that France has taken “the most ambitious and strongest measures, and the earliest, to protect the purchasing power of our fellow citizens [in the Eurozone].” Le Figaro recalls that although inflation reached 4.8% in April over one year and should rise to 5.4% in June in France, this increase is more limited than in other countries such as Germany (+7.8%), Spain (+10%) and the Netherlands (12%). The latest Cofidis and CSA Research survey on French spending habits in which 1150 respondents believe they lack an average of €490 per month to live adequately (+23 euros compared to the September 2021 survey), reports BFMTVThis is particularly noticeable among single-parent families (78%), young people aged 25-34 (76%) and working-class people (72%). The vast majority of consumers surveyed (81%) plan to reduce their spending, whether essential or not, and 69% plan to change their consumption habits – notably to limit their spending on heating (25%), food (23%) and water and electricity (20%). For less essential expenditures, 55% of respondents plan to limit their outings, clothing purchases (45%), travel (41%), leisure (38%) and culture spending (36%). This trend is reflected in the drop in household consumption (-1.3% in Q1-22) and the purchase of goods (-1.7%) according to INSEE.

According to Le Mondethe government is considering bringing forward to early June – ahead of the legislative elections – the presentation of its "exceptional bill on purchasing power", previously mentioned by President Macron prior to the elections. This bill could include the household support measures announced by President Macron during the presidential campaign, such as the tripling of the Macron bonus, the indexation of pensions on inflation (advanced by six months), the revaluation of minimum social benefits, and a food voucher of up to €50-60 per month for the most modest households. Some of these measures have already been enacted without a bill (18-cent fuel discount) while the contour of others remain “vague”, such as the food voucher. The paper reports that the bill will prolong the electricity price cap and gas price freeze until the end of the year as well as the 18-cent fuel discount. Moreover, the suspension of TV licence tax will come into force this year as well as the decrease in payroll charges for freelancers. Les Échos recalls that the food voucher measure has been “in the works for over a year”. Originally, the food voucher for the modest households was a proposal made in the context of the Citizens’ Climate Convention. Prior to the presidential elections, Julien Denormandie, Minister of Agriculture, had promised that this food voucher would come into force just after the re-election of Emmanuel Macron and before the end of the year. The Ministry of Finance and charities are reportedly “cautious” and “sceptical” about this proposal, adds the paper. The FNSEA, France’s largest agricultural trade union, has called on the government to distribute the food voucher "as soon as possible, not in three years. It is in the first 200 days (of the mandate) that it must be done", reports Le Figaro.

 Indeed, presenting this bill beforehand to ensure a rapid vote once the new National Assembly is in place has “obvious political advantages in an electoral context” observes Le Monde. As the campaign for the legislative elections begins, “it is out of the question for the government to let the opposition get all the attention”, analyses Les Échos, especially as government ministers are no longer taking radio and television interviews since 24 April (electoral reserve period). Communicating on the government’s action could not wait any longer in Le Figaro’s view, as “the President’s course of action remains vague for the public opinion”. The opposition is waiting to surf on rising prices, for example with Jean-Luc Mélenchon who has taken up the theme to support his new left-wing alliance (Nupes). A Harris Interactive-Toluna/Challenges poll, published on 11 May, credits Nupes with a better score than the majority in the first round of legislative elections (28% against 26%). However, another poll by OpinionWay-Kéa Partners for Les Échos and Radio Classique published on 10 May reveals that the presidential majority could be as strong as during the outgoing legislature obtaining 310 to 350 of the 577 seats, with the Nupes gaining between 135 and 165 seats. 

Now the question facing President Macron is whether it is not necessary to cut back and reserve aid for those who really need it, asks Dominique Seux on France InterThe problem is that if “temporary measures continue this will cost tens of billions of euros.” Both Le Monde and Les Échos are wary of the financial impact of this bill on already deteriorating public finances. Moreover, Les Échos is concerned that the “constrained budgetary context” will hamper the President’s ability to implement additional spending power measures announced during his campaign, such as the "employee dividend", scrapping the TV licence tax (estimated to cost €3.2bn) or reducing inheritance tax. For Le Figaro, it is clear that President Macron is determined to pursue his “cheque book policy” having already spent €25 billion on preserving spending power at this stage. The paper argues that “nothing has been said about savings to be made during this new five-year term”. It is clear now that France has truly shifted to a new paradigm known as “whatever it takes” to deal with the health crisis, “in the form of billions of euros to solve all problems” comments the paper ironically. Turning to the thorny pension reform, Seux ponders whether President Macron will be able to push through the reform given the “tense international, economic and political landscape” before him. The President will then have to convince the French of the financial necessity of such as reform, aside from “simply saying that the objective is to reassure Brussels and the Germans” and that his reform will not penalise those who started working around 20 years old. Whether to go ahead or not with this reform, and if so, with how, will be the most important decision of the beginning of his term.

Impact study: France Relance and France 2030

Somewhat overshadowed by the large inflation spending following energy inflation and inflation linked to the war in Ukraine, the impact of the French national recovery plan and the French investment plan 2030 are the focus on a recent study by PwC Strategy reported in Les Échos. PwC Strategy assesses the impact of both schemes on industrial production and employment. According to the so-called "reference" scenario, industry's share of GDP would rise from 10.1% in 2019 to 12% by 2030. France would still lag behind the European average of 16%.

Brought out in different circumstances and with different rationales - €100bn recovery plan to support the French economy and investment during the pandemic and the France 2030 plan to develop future technologies – both plans share the same objective of reviving French industry, strengthening independence in strategic sectors and to create jobs, recalls the paper. To date, no clear figures of its impact are available. In the wake of the France 2030 Investment Plan back in October 2021, Finance Minister Le Maire had promised, “each euro invested will generated €1.50 of additional wealth”. In their study "The Industrial Renaissance in France 2030", Olivier Lluansi and Vladislava Iovkova, partners at Strategy&, PwC's strategy consulting unit sought to assess the potential benefits of these investment programmes in terms of added value, job creation and gains for the balance of trade. They also integrated the expected impact of part of the relocations carried out during Emmanuel Macron's first five-year term. In their so-called "reference scenario", they assumed that for every euro invested by the state, the private sector would invest €2.50. According to Lluansi, “this is the ratio observed for the hydrogen investment plan and is a good reference because it is one of France's political and strategic priorities.” According to the study, the initiatives undertaken in recent years would generate almost €100 billion of additional public and private productive investment by 2030 benefiting notably the electronic chip sector, electrification of production and mobility, pharmaceuticals and the circular economy. Excluding inflation, added value in industry would increase by €70 billion per year by 2030. Taking into account the rise in prices, it would then reach €392 billion. The share of manufacturing industry in GDP would thus rise from 10.1% in 2019 to 12%. However, France would still not catch up with the European average, where industry contributes 16% of GDP, according to the study. Over the period, this would generate 431,000 direct and indirect jobs. At a time when French external trade is deteriorating, this would enable it to reduce its trade deficit for manufactured goods by around 40 billion, bringing it down to €12 billion, notes the paper. The main challenges to achieving these results are the lack of skills and available land. In one scenario, with the state and private sector investing in equal measure, added value of industry would increase by 50 billion euros - excluding inflation - by 2030, and 310,000 jobs would be created over the period. In another scenario, which assumes that the private sector will invest four times more than the public sector, GDP would rise by €90bn per year between now and 2030, leading to the creation of more than half a million jobs.


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