That French zero growth thing called ‘recovery’
Perhaps only in France could zero growth be perceived as progress. It seems that the French government needs to mask reality to hide the need for urgent pro-growth reforms. The economy can only be stimulated by encouraging businesses and creating real jobs – and that will take concrete actions rather than fine words to bring about change - writes GIS expert Dr Emmanuel Martin.
After 0.7 per cent growth in the first quarter, the French economy recorded a disappointing 0.0 per cent for the second quarter. Germany enjoyed 0.4 per cent in the second quarter, after 0.3 per cent in the first. In the first six months this places France on an equal footing to its European partner, at 0.7 per cent.
However, French growth in the first quarter was driven by energy consumption due to a late cold winter and public consumption – nothing to brag about. Thus, it was probably not only over-optimistic but unintentionally ironic on the part of the Finance Minister Michel Sapin to talk of a ‘growth recovery’ after the last figures were unveiled by the National Statistics Institute on August 14, 2015.
Many thought that lower oil prices and a weak euro should ‘stimulate’ the economy. However, if French exports have grown only slightly (by 0.7 per cent) this has not really raised the rest of the economy. Also troubling is the still weak business investment (0.2 per cent). Production fell back by - 0.1 per cent. Things in the real world are more complex than simplistic, mechanical relations described by the proponents of ‘stimulus’ policies by the government and central banks. As long as the institutional conditions for value creation by businesses are not met, France will suffer from sluggish growth.
Now, the French government may only look at job creation. Indeed, as it says, 27,000 jobs were created in the private sector during the second quarter. These are probably related, with a lag, to the growth of the first quarter. And that is good news, but here again, caution is needed. For, despite new jobs, about 50,000 extra jobless were registered at the same time. So the level of job losses was around twice as high. Many of these new jobs were temporary (20,500), pointing to the fragile nature of the job market, confirmed by industrial job shrinkage (-0.3 per cent).
All this tells us is that there is no miracle and that incantational politics does not work. France needs serious structural reforms, far beyond the Macron Law and the Competiveness and Employment Tax Credit (CICE). The government must rethink its labour market regulations towards more flexibility, for example, lower business and social tax, which currently undermines businesses’ profitability by five points less than German companies – 31 per cent vs 36 per cent).
The French government has understood that businesses are the main economic driver – which is notable intellectual progress – but it now needs to act much more consistently. That would mean telling the French people about the real situation and the necessary measures required. Then a genuine reform process could begin.