France Economic Outlook

by Alain Henriot

Delegate Director, Coe-Rexecode

Kiel - 16th March 2010

- 2

1 - A better resilience of the French economy to the crisis than other Euro area countries

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

GDP (in volume terms)

Euro area

France

quarter-on-quarter, %

GDP (in volume terms)

© Coe-Rexecode

y-o-y, %

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

0

-6

-4

-2

0

2

4

6

FranceEuro area

- 3

• What is behind this resilience ?

Lower exposure to industry

Sectoral specialisation led to a less pronounced downturn in industrial production in France than in other Euro area countries

The share of the public sector in the economy has contributed to soften the decline of activity

- 4

• Different phases in the recovery process :

Industrial production index

© Coe-Rexecode

2005=100

2005 2006 2007 2008 2009 2010

70

80

90

100

110

120

ManufacturingManufacture of food productsand beveragesElectrical and electronic equipment; machine equipmentManufacture of transport equipmentOther manufacturing

Phase 1: a global crash (mid-2008 – early 2009)

Phase 2: a strong upturn in the car industry (thanks to public support schemes in many European countries) triggering the supplying industries (2nd and 3rd quarters 2009) ; In the meantime the activity in other sectors (equipment goods) is stabilising at a very low level (-25 % compared to the pre-crisis level)

Phase 3: Beginning of a downturn in the car industry production coupled with a moderate increase in activity on other industries (2009Q4 -2010 Q 1)

Forthcoming: strengthening global output or aborted recovery?

- 5

2 – What can we learn from business surveys?

FranceIndustrial Confidence Indicator

© Coe-Rexecode

Balance in %European Commission

90 92 94 96 98 00 02 04 06 08 10

0

-45

-30

-15

0

15

PMI index - Reuters

97 98 99 00 01 02 03 04 05 06 07 08 09 1030

35

40

45

50

55

60

65

- 6

• What can we learn from surveys? (2)

FranceService Confidence Indicator

© Coe-Rexecode

Balance in %European Commission

90 92 94 96 98 00 02 04 06 08 10

0

-30

-15

0

15

30 PMI index - Reuters

97 98 99 00 01 02 03 04 05 06 07 08 09 1040

45

50

55

60

65

70

- 7

• What can we learn from surveys? (3)

FranceConstruction Confidence Indicator

© Coe-Rexecode

Balance in %European Commission

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

0

-60

-40

-20

0

20

40

- 8

• To sum up, Coe-Rexecode indicator assesses underlying growth at around 1.2% in February against 2.3% three months ago: is it the sign of a slowdown of economic growth?

% annual rate

FranceUnderlying growth

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

-6

-4

-2

0

2

4

6

RecessionLow phase of the growth cycle

- 9

France: monthly business survey (goods-producing industries)

Finished-goods inventory level

© Coe-Rexecode

Balance s.a, in %

2005 2006 2007 2008 2009 2010

00

5

10

15

20

25

30

1. Inventories: in the industry, the level of inventories is now considered as very low, it can help to support future stock building

3 – Which engines for economic growth?

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

J anuary 2008

April 2008 J uly 2008 October 2008

J anuary 2009

April 2009 J uly 2009 October 2009

Change in inventories: contibution to GDP growth

France Germany

- 10

• Which engines for economic growth? (2)

2. Private consumption: in 2009, households real disposable income was supported by disinflation. It will not be the case anymore in 2010. Since the beginning of 2010, the planning end of the wreckage premium has been weighing on car sales.

France

© Coe-Rexecode

Chained billion eurosConsumption in manufactured goods

02 03 04 05 06 07 08 09 1017

18

19

20

21

22

23

2.5

2.7

2.9

3.1

3.3

3.5

3.7

Manufactured goods (LHS)Automobiles (RHS)

%Households real disposable

2002 2003 2004 2005 2006 2007 2008 2009 2010

0

-6

-4

-2

0

2

4

6

8

y-o-y, %quarter-on-quarter, %

- 11

• Which engines for economic growth? (3)

3. Investment: the low level of capacity utilisation will hamper the recovery in investment

France

© Coe-Rexecode

%Capacity Utilization Manufacturing

2002 2003 2004 2005 2006 2007 2008 2009 2010 201170

74

78

82

86

90

INSEE survey

- 12

• Which engines for economic growth? (4)

4. Exports: a relief thanks to the depreciation of the Euro in a context of a rather strong world demand

2005=100

France

2002 2003 2004 2005 2006 2007 2008 200970

80

90

100

110

120

130

Export performancePrice competitiveness

Export performance: export volumes/world demand addressed to France

Price competitiveness: national export prices/export prices of competitors

- 13

• Which engines for economic growth? (5)

5. Public investment: it was rather weak in 2009, despite growth support schemes. It was the result of the cities electoral cycle.

France

© Coe-Rexecode

%GFCF General government

2002 2003 2004 2005 2006 2007 2008 2009 2010

0

-12

-9

-6

-3

0

3

6

9

12y-o-y, %quarter-on-quarter, %

- 14

France

© Coe-Rexecode

%

Unemployment

91 93 95 97 99 01 03 05 07 09 117

8

9

10

11

12

2.0

2.3

2.6

2.9

3.2

3.5

Unemployment rate (LHS)Unemployed (thousands of persons) (RHS)

Quarterly changes - thousands of persons

Employment - private sector

91 93 95 97 99 01 03 05 07 09 11

0

-200

-100

0

100

200

4 – What prospect for the labour market?

- 15

• In France, productivity per employee has already returned to the pre-crisis level

© Coe-Rexecode

2008q1=100USA

1 2 3 4 1 2 3 4 12008 2009 2010

94

96

98

100

102

104

106

GDPEmploymentProductivity

2008q1=100Germany

1 2 3 4 1 2 3 4 12008 2009 2010

92

94

96

98

100

102

GDPEmploymentProductivity

2008q1=100France

1 2 3 4 1 2 3 4 12008 2009 2010

94

96

98

100

102

GDPEmploymentProductivity

2008q1=100Euro area

1 2 3 4 1 2 3 4 12008 2009 2010

94

96

98

100

102

GDPEmploymentProductivity

- 16

• Temporary jobs have been back on a rising trend, but it is probably the result of higher demand in the car industry

Thousands of personsFrance: temporary jobs

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12005 2006 2007 2008 2009 2010

250

300

350

400

450

500

- 17

• Forecast 2010 -2011

Annual change (%) unless otherwise stated 2009 2010 2011GDP -2.2 1.7 1.4Private consumption 0.8 0.9 0.8Total investment -7.0 -1.1 2.4Of which: business investment -7.7 -0.8 2.5 Residential construction -8.1 -3.5 1.7Inventories change (contribution to GDP, %) -1.4 0.8 0Exports -11.2 4.5 5.0Imports -9.7 4.3 4.5Inflation (annual average, %) 0.1 1.2 1.0Current account balance (% GDP) -2.0 -2.1 -2.2Public deficit (% GDP) -7.9 -7.8 -6.9Unemployment rate (average level, %) 9.1 9.9 10.0

- 18

• In conclusion : has the crisis hit the long-term outlook? …

GDP in level termsLevel of potential outputrevised downwardbut potential growth is not revised after an intitial adjustment

Level of potential outputandpotential growth are revised downward

A traditional cyclewith an unusual magnitude

Potential output unchangedthe output gap has to be closedStrong growth to be expected

Crisis

- 19

• … probably yes !

France GDP (in volume terms)

© Coe-Rexecode

Chained billions of euros at annual rate

2002 2003 2004 2005 2006 2007 2008 2009 20101450

1500

1550

1600

1650

1700