Analyses & Studies

France Economic Policy Roundup 25 February.

Inflation: According to provisional estimates released on 25 February, the INSEE estimates 3.6% rise in the Consumer Price Index (CPI) in February year-on-year, following a 2.9% increase in January. This increases results from an increase in the prices of energy (due to a rise in the price of oil), services, manufactured goods and food prices. Over one month, consumer prices should rise by 0.7%, after +0.3% in January. The prices of manufactured goods should rebound due to the end of winter sales. Year on year, the Harmonised Index of Consumer Prices should rise by 4.1%, after +3.3% in January. Over one month, it should increase by 0.8%, after +0.2% in the previous month.

Employment: According to the Ministry of Employment on 25 February, the number of unemployed jobseekers (category A) stood at 3.2 million in January, 3.2% lower than in December 2021, equivalent to 102,000 jobseekers. Over one year, the number of category A jobseekers fell by 15.4% (-583,000 jobseekers). The total number of jobseekers (categories A, B and C) in France (excluding Mayotte) fell by 0.9% in January to 5.546 million (-50,500) compared to December 2021, according to Ministry for Employment. For all categories A, B and C combined, unemployment fell by 7.7% (-461,900 jobseekers). The fall in category A in January concerns all regions and is particularly marked among youth (-8.5%, or -36,800 jobseekers).

Unemployment in categories B and C rose by 5.1% and 0.9% respectively. The share of long-term jobseekers (registered for one year or more) stood at 48.6%. The last quarterly results published by the Ministry for Employment at the end of January 2022 showed a clear drop of 5.9% in unemployment in Q4-2021 compared to Q3-2021. At the end of 2021, the number of unemployed reached its lowest level since Q3-2012.

 Category B corresponds people having worked a maximum 78 hours per month while Category C corresponds to people having more than 78 hours per month.

 Business climate: In February, the business climate in France rose by 6 points to 112, according to Insee on Wednesday. Businesses responded to the survey between 27 January and 18 February 2022, before the escalation between Russia and Ukraine. The business climate rose by 22 points in the hotel and catering sector. Similarly, in construction, confidence is increasing (114, +1) and in Industry (112). The IHS Markit Institute recorded a 5 point increase in the composite PMI index for France, to 57.4 points. The deterioration of the situation in Ukraine may further accentuate the phenomenon by pushing up energy prices. All this is likely to weigh on household consumption in the first quarter.

Mitigating measures The doubling of the daily use limit for 2022 meal vouchers from €19 to €38 has been extended until 30 June 2022 for restaurants only (not supermarkets). The vouchers can still be used at the weekend (week-only prior to the pandemic).

The impact of EU Russia sanctions on the French economy All papers report on the economic impact of EU Russia sanctions on the French and EU economies. Following the invasion of Ukraine by Russian forces in the early hours of 23 February, the shares of listed French companies, such as Renault (Avtovaz), Société Générale (Rosbank), BNP Paribas, Alstom (Transmashholding) fell sharply. Renault announced on 24 January the closure of its sales office in Kiev to ensure the safety of its employees – French and Ukrainian alike. Patrick Pouyanné, Chairman of the TotalEnergies group, dscribed the situation as worrying insofar as the EU imports of its gas needs from Russia. “There is no short-term solution to replace imports from Russia on the European gas market, if they were to cease because of the war in Ukraine,” he continued. Speaking to BFM Business on 23 February, Finance Minister Le Maire assured that "Russia is not a strategic market for France. The impact on the French economy will therefore be limited." According to Le Maire, "the French economy is not very exposed to Russia." France exports less than €7 billion a year to Russia, equivalent to barely more than 1% of French exports and imports less than €10bn per year from Russia, less than 2% of French imports.

According to the French Treasury, the EU was Russia’s largest market in 2020 (40.6% of Russian exports down from 52.1% in 2014). In 2020, Russian exports to the EU fell by 27.9%, and 48.6% of these were oil and gas products (60% in 2019). France absorbed 1.4% of Russian exports (compared with 1.5% in 2019) in 2020, 54.2% of which were petroleum and gas products. Within the EU, Russia's top three clients are the Netherlands (7.4% of Russian exports), Germany (5.5%) and Italy (3%). It is also worth noting the significant increase in Russian exports to the UK (6.9%), which will become Russia's third largest client in 2020, ahead of Germany. In 2020, Russian imports from the EU stood at 35.5% of total Russian imports compared to 42.6% in 2013. Germany is Russia's second largest supplier with a 10.1% market share and is France's main competitor in major segments such as industrial machinery and equipment, pharmaceuticals (Russia's largest supplier), automobiles, household appliances and distribution. In 2020, France maintained its market share at 3.5% behind Italy (4.4%). It is Russia's sixth largest supplier worldwide and the third largest supplier within the EU. Les Échos recalls that the alcoholic beverages market represents more than a third of French exports to Russia with a total of €284 million at the end of January 2022, according to the French customs department.

French companies are among the most dynamic in Russia, reports France Info. France is the second largest investor in FDI flows in Russia. There are over 500 French subsidiaries in Russia, including 35 companies listed on the French stock exchange. France is the second largest provider of FDI flows (1st in stock since 2018, ahead of Germany), and French companies are the largest foreign employer (estimated 156,000 employees) in Russia. Employers include Total Energies, Renault and Leroy Merlin. Total Energies operates numerous oil and gas fields in Russia. The French energy company is also a shareholder in Novatek, Russia's leading independent natural gas producer behind the state-owned Gazprom, which allows the French company to participate in giant projects, including some in liquefied natural gas in Siberia. Renault is a leader on the Russian car market with its Avtovaz brand, the owner of Lada. Russia is even the second biggest market in the world for the manufacturer after France, and ahead of Germany. Leroy Merlin, DIY and home improvement company, is the number one DIY retailer in Russia with over 100 shops in the country, and plans to open more each year. Decathlon (sports), Alstom and Tarkett (floor and wall coverings) are also present and thriving in Russia. In the banking sector, Société Générale owns Rosbank.

In Ukraine, some fifteen French food and agricultural companies are present, including Soufflet, Louis Dreyfus and Malteurop in the fields of cereal production, trading and processing, notes Les Échos. Bonduelle and Auchan (agri-food) are present in Russia. Among the dairy industry players with factories in Russia and Ukraine are major players such as Danone, Lactalis and Savencia-Bongrain Zveniogorod. In the plant seed sector, the cooperatives Limagrain, MAS seeds (which recently opened a research centre in Boryspil, on the outskirts of Kiev) and Euralis have invested in production units there. Lactalis has a total turnover of €100 million in Ukraine, where it operates three production sites (butter, milk and yoghurt) for domestic consumption. The volumes dedicated to exports are minor. The group does not employ any expatriates and all 850 employees are Ukrainian. In Russia, Lactalis generates a €175 million turnover with four cheese factories, including one in Belgorod near the Ukrainian border employing 1,900 Ukrainian citizens. Russia is the country where Danone is most exposed, notes the paper. Danone has controlled Russian leader Unimilk for more than ten years and generates 5% of its global turnover there with a dozen factories. Last year, it invested €10 million vegetable/nut milk alternatives under the Alpro brand. In the Ukraine, Danone’s business accounts for just 1% of its turnover.

On gas, the government will support companies, such as SMEs or subcontractors in the energy sector, noted Le Maire, acknowledging a possible increase in the price of gas. The gas price freeze decided in October 2021 runs until June 2022, recalled Le Maire, and can be extended should prices “skyrocket”. To compensate gas suppliers, the government has earmarked €1.2 billion in 2022 Budget Bill. If this sum proves to be insufficient in the coming months, the government “will take the necessary measures to guarantee compensation to gas suppliers," added Le Maire. The Minister assured that “France relies on Russia for only 20% of its gas imports compared to the European average at 40%.” Interviewed by France Info on 23 February, EU Affairs Minister Clément Beaune recalls that “Russia is more dependent on Europe as it accounts for 80% of Russian gas exports”. With regard to oil prices, Minister Le Maire is keeping an eye on the prices “without ruling out any options” as “we don't know what Vladimir Putin's decisions will be and how far the price of a barrel will go". Prime Minister Jean Castex and political leaders are due to meet by the end of this week to discuss the ongoing situation. François Fillon, former French Prime Minister, who condemned the use of aggression in Ukraine in a Twitter statement on 24 February, has been called upon to resign from his position as board member of Russian petrochemicals giant Sibur.

However, there are also growing concerns regarding food security. Indeed, Russia and Ukraine are major heavyweights in the cereals sector, notably for grain, fertiliser and wheat, recalls Les Échos. With 75 million tonnes of wheat, Russia accounts for 11% of world production and between 18% and 20% of world wheat exports. In 2021, Ukraine produced 33 million tonnes of cereals, of which it exported three-quarters, making it the world’s twelfth largest exporter. Ukraine exported 32 of the 40 million tonnes of its maize production. Ukrainian cereal exports mainly go Egypt and Indonesia. There is a risk of fewer deliveries to these countries and therefore of food shortages in areas [Egypt, Indonesia] where this can lead to political instability," observes Christiane Lambert, President of the FNSEA agricultural union. Crucially, 40% of Ukraine's wheat production is located in the east of the country, including 8% in the separatist regions alone. The occupation of eastern Ukraine by Russia could deprive Ukraine of 30% of its barley and up to 40% of its sunflower, wheat and maize production, according to FranceAgriMer. For sunflower oil, Russia and Ukraine together account for nearly 80% of global exports, especially to the EU. The strong presence of Russia on the fertiliser market (16% world trade) could also trigger a price increase in fertilisers insofar as gas is used to manufacture nitrogen fertilisers. This could force farmers, particularly French farmers, to produce less for cost reasons. "Vladimir Putin has his hand on the gas tap and to make fertiliser, you need gas," warned Christiane Lambert, president of the FNSEA agricultural union, on BFM Business on 23 February, predicting "undeniable" repercussions on production prices for the agri-food industries. The price of fertilisers has already risen by 90% in a year, notes Lambert. She also fears possible retaliatory measures from Russia on EU agricultural produce like in 2014 following EU sanctions on Russia for the annexation of Crimea. Lambert recalls that back then, agriculture was "the first sector targeted by Vladimir Putin", notably on dairy produce, adding that French farmers had "never recovered the volumes lost at that time". In 2014, Russia had imposed an embargo on European food products. Since then, Russian imports from the EU have continued to fall. The embargo has even enabled Russia to modernise its agricultural sectors and to become the world's leading wheat exporter in 2018. However, Les Échos is confident that the impact of sanctions on cereals will be "weak" on France, which can ensure its food sovereignty.  

While it remains too early to measure the impact of the new sanctions, Dominique Seux argues that they will not be effective because Russia and Europe are interdependent. Moreover, the 2014 sanctions did not stop French businesses from growing and at a much faster rate than in France, points out France Info. Some French businesses are particularly exposed, such as Engie, which co-financed Nord Stream 2 and Société Générale. For L’Opinionthe EU did not bring out the heavy sanctions package it had promised, partly for fear of economic repercussions, partly to keep some sanctions under wraps in the event of new provocations from Russia. For example, excluding Russia from the Swift financial transaction system, reports Le Figaro. This would effectively ostracize Russia, which is heavily dependent on Swift for its gas and oil exports traded in US dollars, by cutting off international transactions, triggering currency volatility and causing massive capital outflows. Yet, depriving Russian banks of Swift would penalise French banks and businesses. French retailers in Russia would find it difficult to send funds to and from France. While Russia has developed a SPFS, a parallel financial transaction system, it is nowhere near as performant as Swift. Only 400 financial instructions, mostly Russian, are part of the SPFS system which does not function 24/7. In addition, the size of the messages transmitted cannot exceed 20 kilobits compared to 10 megabits for Swift. In 2014, Russia also developed its own national payment scheme, MIR, to move away from reliance on Visa and MasterCard for everyday transactions. The next set of sanctions announced on Thursday evening could be of concern for French companies, in particular if the oligarch Gennady Timchenko, close to Putin, head of the Franco-Russian Chamber of Commerce and partner of TotalEnergies in its LNG mega-factories in the Russian Arctic, was to be targeted.


Presidential elections: Candidates present their economic programmes The six of the seven official presidential candidates – Valerie Pécresse (LR), Anne Hidalgo (PS), Yannick Jadot (Greens), Fabien Roussel (Communist Party), Marine Le Pen (RN) and Eric Zemmour (Reconquête) – presented their economic programmes at an event organised by the MEDEF and the network of French Chambers of Industry and Commerce (CCI) held at Station F on 21 February. The debate lasted three and half-hours. Jean-Luc Mélenchon (LFI) was not able to attend. Over 400 French business leaders and industry representatives attended the event. The purported aim of the event, according to Geoffroy Roux de Bézieux, President of the MEDEF, was to “listen and ask questions”. Les Échos describes the debate as “consensual” a view echoed by several business leaders noticing “less ideological polarisation” between candidates. Candidates appeared to share similar views on nuclear energy, competitiveness and sovereignty, employment, climate change and industrialisation.

All candidates focus on competitiveness, even if their ways of enhancing it are not the same. The right wing (Pécresse) and far right (Le Pen, Zemmour) advocate a further cut in production taxes while Hidalgo pledges not to continue cutting them and not to raise corporate tax. Jadot and Hidalgo both advocate for a green/climate wealth tax to fund the green and energy transitions. All candidates support the introduction at EU level of a Carbon Border Adjustment Mechanism. Jadot and Pécresse support a Buy European Act and a Small Business Act at EU level. The issue of public spending was barely addressed save by Pécresse and Le Pen, who wants to reduce compulsory levies to below 40% of GDP by 2030 (currently around 44-45% of GDP). With regard to reforms, Pécresse pledges to reform the pension and unemployment insurance systems. Le Pen wants to bring the retirement age to a maximum of 62 and to 60 for those who starting working youngrt (17-20 years old). She estimates this will save the State around €9.6bn per year.

Pécresse has promised a 10 billion-tax cut centred on the suppression of the C3S and the social flat rate, excluding the CVAE tax (company value-added contribution) on businesses. The CVAE is payable by companies or self-employed persons earning more than € 500,000 in tax-free turnover, irrespective of their legal status, activity or tax regime. Local authorities benefit this tax. Zemmour and Le Pen want to suppress the CFE tax (tax on the self-employed and freelancers). Le Pen and Zemmour want to reduce production taxes for SMEs (€30bn), remove the C3S tax (social solidarity contribution for businesses towards pensions). Zemmour will remove the inheritance for family businesses while Le Pen will offer a five-year inheritance tax exemption for businesses owners who retain ownership of their business for ten years. Le Pen will reinstate the wealth tax (ISF) with some exemptions on property and investments. Zemmour wants to create free trade zones in de-industrialised areas, and create a large ministry of transport, industry and external trade.

Pécresse would create a new High Ministry for Industry, Energy, Innovation, and turn France's national agency into a French DARPA. Both Le Pen and Hidalgo want to increase the number of apprenticeships nationwide and across all sectors and qualifications. On salary raises, Hidalgo wants to raise the minimum wage by 15% to reduce social inequalities. Hidalgo is opposed to the opening of new nuclear reactors but recognizes the role of nuclear energy in transitioning towards renewables such as hydrogen, wind and solar power. For her part, Le Pen stressed the importance of investing in nuclear power, ending the development of offshore windfarms and taking France out of the EU energy market. Le Pen and Zemmour intend to finance their programmes by saving on benefit fraud, notably on benefits awarded to immigrants. Le Pen estimates these savings at €15 to 45bn per year, including on immigration (€18bn per year). In response to a question on how to get French people to do jobs usually held by foreigners, Zemmour advocates resorting to posted workers from Eastern Europe.

Several business leaders interviewed by the paper regretted the absence of outgoing President Emmanuel Macron who has yet to officialise his candidacy. Most attendees interviewed by the paper were unimpressed by the performances of Marine Le Pen, who gave the impression of being unprepared and Eric Zemmour, adamant on grappling additional speaking time. All participants had ten minutes to present their programme followed by a ten minute Q&A with leading economic journalists. Another attendee underline the importance of leadership for business leaders.

The Sanofi vaccine is finally ready Sanofi's Vidprevtyn vaccine is finally ready, reports Le Monde. On Wednesday 23 February, Sanofi presented the final positive phase 3 results for its vaccine against the virus, developed in partnership with British company GlaxoSmithKline. It now needs to obtain approval from the health authorities to start delivering its first doses. The two laboratories will soon submit an application to the European Medicines Agency and its American counterpart, the Food and Drug Administration. Pending approval by European health authorities, the Sanofi vaccine would be the sixth vaccine to be authorised in Europe following the Novavax last year December. The doses of the vaccine should be available in spring. The Sanofi vaccine is based on recombinant protein, a technology used in the vaccine against whooping cough or meningitis, more "traditional" than messenger RNA - has shown 57.9% efficacy in primary vaccination in an environment dominated by new variants, including Omicron. It is 100% effective against severe forms of the disease. Le Figaro wonders how this vaccine will fit into the current vaccine arsenal as the messenger RNA vaccines have taken the lion’s share of the market, and with the Omicron wave currently on the wane. The paper expects Sanofi will market its vaccine as a booster dose. Data released on Wednesday showed an 18- to 30-fold increase in neutralising antibodies when its vaccine is used as a the third dose. "The Sanofi-GSK vaccine has shown that it can be a universal booster vaccine, regardless of the technology used for primary vaccines, in all age groups," said Thomas Triomphe, head of Sanofi's vaccines division. "A new step has been taken to make available a French vaccine using a technology that has been proven for decades and that is particularly easy to use (it can be kept in a standard refrigerator)’’ according to Agnès Pannier-Runacher, French Minister for Industry. Secondly, while a standard refrigerator is sufficient to store the Sanofi vaccine, it is in two separate vials - one for the vaccine itself, the other for GSK's adjuvant - making it difficult to use. This formulation, analysts say, is the result of the impossibility of obtaining a stable mixture over time, observes Les Échos.

The paper wonders to whom Sanofi will sell its vaccine. The US has invested $2 billion in the development of the vaccine in exchange for 100 million doses. Europe, for its part, has bought 75 million doses (with the possibility of going up to 300 million). Le Monde notes that Sanofi already has several contracts in place for its product, including one for 100 million doses with the US, and others with the EU and the UK for 75 million doses. Discussions are also underway with Covax, the device designed to provide vaccines to low-income countries. Faced with its competitors, the pharmaceutical laboratory can also count on its industrial know-how. The group, which is the world's leading supplier of flu vaccines, masters the production, marketing and distribution chain. It is also recognised as a trusted industrial player. These are important assets when it comes to winning orders. The paper recalls that it has been a long road for Sanofi, who faced many setbacks in getting a vaccine out to fight the pandemic at its peak. In December 2020, an error in the dosage of the antigen during the phase 1-2 clinical trials forced Sanofi to start from scratch. In 2021, Sanofi again had to postpone the arrival of its product because it was having difficulty recruiting people who had never been infected with Covid-19 to test its vaccine. These setbacks led to widespread criticism in France of the inability of the country's flagship company, despite being one of the world's leading vaccine specialists, to develop a vaccine against the virus. France's failure is even more striking given that several vaccines, including the messenger RNA vaccines from Pfizer-BioNTech and Moderna, have since been successfully marketed. Many countries, with the exception of low-income countries, already have high vaccination rates against Covid-19. 


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