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France Economic Policy Round Up 03 June 2024

Embassy of Ireland France - Ambassade d'Irlande en France. News and updates from the Embassy of Ireland in France.

Macroeconomic outlook:

  • French credit score: Ratings agency Standard & Poor's downgraded France's credit score for the first time since 2013 on May 31st, due to a deterioration in the country's budgetary position. The downgrade from “AA to AA-” was justified by S&P who cited that the French budget deficit in 2023 was "significantly higher than we previously forecast" at 5.5% of GDP deficit in 2023. France's general government debt is forecast to increase to 112% of GDP by 2027 from around 109% in 2023, "contrary to our previous expectations," the agency added. In response, Minister of Economy, Bruno Le Maire, reaffirmed the government's goal of cutting the public deficit to below 3% of GDP in 2027, telling newspaper Le Parisien that the main reason for the downgrade was because "we saved the French economy" during the Covid and inflation crises. Le Maire confirmed that "There will be no impact on the daily lives of the French", nor change to France’s economic policy. Moreover, Le Maire refuted any concealment of information on the deficit slippage before the Senate Finance Committee on May 30th, asserting that all necessary information and decisions were provided to Parliament and the public in a timely manner. He stated that more precise data became available in February 2024, leading to a warning in early March that the deficit would significantly exceed the target. He admitted however to an error in the assessment of tax revenues, particularly corporate tax, and has initiated a review to prevent a reoccurrence.
  • Unemployment: In Q1 2024, the unemployment rate stood at 7.5% of the labour force, stable compared to Q4 2023. It was 0.4 points above its Q1 2023 level, which, like in Q4 2022, was the lowest since 1982.
  • Inflation: Compared to those of the same month last year, the prices of frequently purchased goods sold in hyper and supermarkets slowed down for the twelfth consecutive month. They rose by 0.8% in April 2024, after +2.3% in March. In large and predominantly food stores, prices rose by 0.9% year on year, after +2.5% in March.
  • Trade deficit: In Q1 2024, France's trade balance improved by €2.7 billion compared to Q4 2023 and reached €17.6 billion. However, despite a sixth consecutive quarterly increase, the trade balance remains worse than in 2019, where it was closer to €14 billion. The improvement in Q1 2024 is mainly due to ‘other industrial products’ driven in particular by chemicals, perfumes and cosmetics and pharmaceutical products as well as to a lesser extent by energy. French customs note that the increase in chemicals is “thanks to the export to Ireland of products used in the production of antibiotics”. Conversely, the balance of transport equipment deteriorated due to the decline in exports after the delivery of a cruise ship built in Saint-Nazaire in the previous quarter. By geographical area, sales with Asia (mainly with South Korea and Japan), Africa and Europe (excluding the EU) improved. Those with the European Union, America and the Near and Middle East are deteriorating.


Macron announces measures to promote the use of artificial intelligence in France and make Paris the capital of AI ahead of the Paris 2025 AI Summit

On May 21st, Macron announced increased measures to promote the use of artificial intelligence (AI) in France to an audience of 600 key players in the tech sector, invited to the Elysée Palace on the eve of the opening of the VivaTech trade show in Paris, this year centred around the theme of AI. The President reaffirmed that AI is a strategic priority for France, with €2.5 billion dedicated to its development as part of France 2030, the national investment plan. Macron also announced 9 "AI Clusters" (as seen in the above image) and new investment support schemes towards the new sector. The proportion of public commissions devoted to French technology start-ups is also set to double, reaching €1 billion between 2024 and 2027.

France is currently home to over 600 AI start-ups and is the leader in Europe for foreign investment in AI. Macron’s speech centred on several of the recommendations made by a specialist committee based on a French report on AI delivered last March. The committee and the government are keen to present AI technology in a "positive" light to the public. The government aims to position Paris as the "capital of AI" with a view to holding an international summit in February 2025 replacing what was the "AI safety summit"  in  London 2023 and Seoul 2024 to "summit for AI action" for its Paris 2025 edition, chosen to give a more positive tone, Le Monde. Additionally, to avoid "regulatory dumping" which would be detrimental to Europe, Macron hopes to initiate a process to set out the main principles of "global governance" of AI, to be entrusted to the OECD in Paris.

Macron argued AI’s potential to support growth in France: "On crucial subjects such as health, education, the transformation of the State or the climate, what AI will enable us to do is a radical revolution". More broadly, Macron called to spread the use of AI in society, while being aware of the fears associated with the technology. "In the past, France lost a lot of industrial jobs, not least because the debate on robots was badly handled. People said it was a horror, that it dehumanised work," he recounted, urging for this debate not to be repeated. To counter this, a "mission to familiarise citizens with AI" will be deployed. The setting up of "AI cafés" has been entrusted to the National Digital Council and public services are being called upon to "lead by example" by deploying AI assistants for staff, notably "in hospitals, the judiciary, national education and defence." France’s AI strategy has set a target of increasing the number of people trained in AI from 40,000 to 100,000 per year and to provide an additional €400 million for France's 9 AI university clusters.

Moreover, in order to have the computing power needed to drive and operate large-scale models capable, for example, of generating text or images, France must "welcome new data centres" said Macron, recognising an "enormous competitive advantage" in the "decarbonised and controllable energy" of nuclear power that France has, and is currently in the process of increasing and modernising with 6 new next generation EPR reactor plants by 2035. Praising the investments announced at the Choose France summit by Microsoft, Amazon and Equinix, Macron explained that Paris "is also in talks with players in the United States and Taiwan with the aim of having AI-dedicated semiconductors produced in France or Europe within 12 to 18 months".

The President also expressed the hope that "Europe will not be the continent that regulates the most while investing the least", calling for a doubling of European budgets. In France, he announced the creation of "a very significant new fund, a quarter of which will be underwritten by the French state, to support the least well-funded sectors most technologically linked to AI" such as microchips, data centres and large-scale language processing models. Libération reports that this is to to avoid involving American companies in the very large fund-raising operations of French start-ups such as Mistral AI, whose former Google and Meta French engineers recently raised $500 million from American funds. Moreover, last week its rival H, created by French engineers from Google, unveiled a first round of funding of $220 million, from Amazon and French investors Bernard Arnault and Xavier Niel (owner of Eir telecoms group in Ireland).

More broadly, Macron called to spread the use of AI in society, while being aware of the public apprehensions associated with the new technology. "In the past, France lost a lot of industrial jobs, not least because the debate on robots was badly handled. People said it was a horror, that it dehumanised work," he recounted, urging for this debate not to be repeated. To counter this, a "mission to familiarise citizens with AI" will be deployed. The setting up of "AI cafés" has been entrusted to the National Digital Council and public services are being called upon to "lead by example" by deploying AI assistants for staff, notably "in hospitals, the judiciary, national education and defence."

Minister of Economy champions AI for European economic competitiveness at VivaTech and announces a France-United Arab Emirates strategic partnership for AI

France and the United Arab Emirates have entered into a "strategic partnership" in the field of AI as announced by French Minister of Economy, Bruno Le Maire during a visit to the state on May 21st. The joint-agreement, signed with the director of the Emirati sovereign wealth fund Mubadala, Khaldoun Al Mubarak, opens "a new era of economic cooperation" between the two countries. The UAE was the first in the world to appoint an AI minister in 2017, aims to become one of the world leaders in this field by 2031, notes Le Monde. In his address at the Sorbonne University Abu Dhabi, Le Maire affirmed that "France has chosen to be the leading country in Europe in terms of AI. And for that, we need partners" Four new fields of cooperation will be opened and developed in the coming months, with Le Maire citing skills and research development, investments in data centres, the semiconductor industry and AI applications.

Following his visit to the UAE, Le Maire delivered a speech  at Paris’ Viva Tech trade show on May 22nd, advocating for "innovation before regulation" and state assistance for tech companies:  "You need money, we will find it…because we don't want to finance start-ups that end up going abroad.” Speaking on European economic competiveness, he championed AI’s importance; “I refuse to allow Europe to systematically lag behind the United States for three decades in terms of productivity. Europe is in a state of economic lethargy. We need to wake it up. And artificial intelligence is the technology that will enable us to wake up the European economy, wake up its productivity and make up for the productivity losses we've been experiencing for several decades.”

Le Maire also raised the strategic importance of increasing the number of data centres in France, deeming them as “among the most critical infrastructures of the 21st century.” Following that “with the President of the Republic, we are also determined to have as many data centres as possible in France, because it complements the quality of the French infrastructures. It's great to have railways, to have roads, it's all very well to have nuclear power plants, but it's also but it's essential to have as many data centres as possible in the future.”

France retains its first place as the “most attractive European country for investors”, with Macron praising a record year of foreign direct investment in France

At the Choose France summit in Versailles on May 13th, Macron praised a "record" year of foreign direct investment in France, announcing  56 investment decisions amounting to €15 billion (versus 28 projects amounting to €13 billion in 2022), to an audience of 180 international CEOs. The 7th edition of the Summit to promote FDI in France took place under the theme of   "France, land of champions" echoing the upcoming Olympic & Paralympic Games, as reports Les Echos. Despite a global slowdown, for a fifth consecutive time running, France retained its first place as the most attractive European country for investors according to the EY barometer published on May 2nd, as reports Le Monde.  The President reaffirmed the consistency of his economic policy, citing France’s attractive fiscal policy, investments in innovation with France 2030, regulatory simplifications and clear strategy in terms of decarbonised energy production and ecological transition. Laurent Saint-Martin, Head of Business France commented, “Finally, more factories are being opened than closed, and more industrial jobs are being hired than are being eliminated. And that's a real industrial revolution in France", as commented on France Inter Radio.

In terms of green industry, on May 14th, Taiwanese battery manufacturer Prologium announced that it was strengthening its presence in France with an R&D center in Paris-Saclay. Prologium announced a €5.2 billion investment at the Choose France summit last year and have now signed a supply agreement with French materials specialist Arkema and a contract with Schneider Electric, to better organise production at their future Dunkirk based gigafactory, as reports Challenges. Meanwhile, Germany's Lilium announced an investment of €400 million on an electric aircraft development plant in the southwest of France. Minister of Industry and Energy, Roland Lescure, announced in the newspaper La Tribune Dimanche on May 12th  an investment of  €1.3 billion by European consortium FertigHy in a northern French nitrogen fertilizer plant, which uses hydrogen rather than natural gas, as reports Le Monde. Lescure also announced that Blanquefort, a town in south-west France that was marked by the closure of a Ford plant in 2019, has plans to soon host a nickel refinery set up by the Swiss company KL1, which would invest €300 million. Moreover, the Belgian chemical group Solvay will reportedly spend €100 million on converting its La Rochelle plant into a production unit for rare earths, essential to the of manufacturing electric batteries. Irish companies ECOCEM and Glen Dimplex also participated in the Choose France summit, making investment announcements both fitting into the decarbonisation and green industry category.

The pharmaceutical sector also remains another key sector for FDI in France. On May 12th, the Elysée confirmed investments by American laboratory Pfizer in south-west France (€500 million), the Anglo-Swedish AstraZeneca in Dunkirk (€365 million), the British GSK in north and west France (€140 million) and the Swiss Novartis in Alsace (€28 million), for a total amount of just over €1 billion. On the sidelines of the summit, French company Sanofi announced an investment of €1.1 billion, to strengthen its drug manufacturing capacities in France, providing 500 new jobs. "We chose France a long time ago, and we continue to do so. This investment will contribute to our health sovereignty," said Audrey Derveloy, President of Sanofi France.

After seven years, some critics remain sceptical of how to properly assess Choose France's economic impact after seven years. According to  Le Monde, data provided by the French government indicates that 122 investment projects have been publically announced during the forum, representing a total of €31 billion from 2018 to 2023. Most of these have been long-term programmes, running over several years. A breakdown published on May 10th by L'Usine Nouvelle indicates that most of these projects involve extensions to existing industrial sites, and that only about a quarter of them are for new plants or R&D centres. That being said, very few of the projects that were first announced at the Choose France summit have been abandoned to date.

Moreover, Challenges highlights how many Choose France projects are uncertain, given the scientific, technological and commercial risks attached to these new industry investments. In the case of Prologium, they note that the electric battery manufacturer spent only €10 million last year in France on their overall €5.2 billion investment promised and that their battery has so far only been the subject of a test production in Taiwan launched in January 2024 and will “have to fight hard to find a place in a market saturated with Chinese batteries, in order to keep the promise of running Dunkirk's production lines at full capacity by 2030.” Additionally, the just announced Lilium investment to manufacture small electric planes is not yet launched, with flight test programmes to obtain certification not scheduled until 2025-2026.

In an article in Le Monde, Economist Lucas Chancel, Associate professor at Sciences Po and the Harvard Kennedy School, and co-director of the World Inequality Lab at the Paris School of Economics challenges the methodology of the EY barometer on the attractiveness of France. He argues that if measured in terms of jobs created by foreign investment projects rather than number of projects, France would place third on the European scale of attractiveness with 39,773 job creations from FDI in 2023, behind the UK and Spain. Adding to this, he argues that “the number of jobs created should at least be related to the size of the country for the comparison to make sense”. With this adjustment, France comes in eighth place behind Portugal, Serbia, Ireland, Hungary, Spain, the UK and Greece, and that the 39,773 jobs created in 2023 represent 0.13% of the total labour force.

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