05 November 2013

France: Autumn 2013 economic forecast - Gradual recovery ahead

A firm growth outlook is only expected in the medium term, but private consumption is resilient and business confidence is improving. A relatively weak external sector, increasing unemployment and low inflation point to some remaining uncertainties.

After two quarters of recession, real GDP growth rebounded sharply (0.5%) in the second quarter of 2013, partly driven by temporary factors. Activity is then expected to decelerate before slowly picking up again in 2014. All in all, real GDP growth is forecast at 0.2% in 2013 and 0.9% in 2014. In 2015, under the usual no-policy-change assumption and thanks to improved confidence, private consumption, the traditional growth driver of the French economy, is forecast to pick up and stimulate aggregate demand and in turn firms' investment, pushing real GDP growth up to 1.7%.

The resilience of economic growth in 2013 as a whole seems to have led to an improvement in business confidence in a context of stable lending conditions. However, entrepreneurs are likely to give priority to the restoration of their profit margins, before considering investing.

Export growth is set to accelerate as from 2014 on the back of an expected rebound in external demand. The recent competitiveness reforms are expected to gradually reduce the pace of losses in export market shares, although without fully reversing the trend.

In the current context of subdued growth, employers are likely to favour increasing
productivity over job creation throughout 2014. However, subsidised job schemes in the public sector are assumed to stimulate somewhat total employment in 2014. The persistent expansion in the labour force, driven by demography, is forecast to imply a further moderate increase in unemployment, which is set to reach 11.3% in 2015 after 11.0% in 2013.

After a low level in 2013 (1.0%), inflation is set to slightly rise to 1.4% in 2014 on the back of the increases in VAT rates entering into force in January, before slowing to 1.3% in 2015.

In 2013, the general government deficit is forecast to reach 4.1% of GDP, down from 4.8% in 2012. Under the no-policy-change assumption, the general government balance is set to somewhat improve in 2015, reflecting higher recovery-driven tax receipts partly offset by projected expenditure developments. The ratio of government debt to GDP, at 90% in 2012, will further increase on the back of still high deficits relative to nominal GDP growth.

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