HPS the French Dis-Connection

7/26/2019 HPS the French Dis-Connection

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Hamilton Place Strategies provides communications, analysis, andadvocacy solutions at the intersection of business, government, andmedia.

The French Dis-Connection

A Primer On France's Post-Recession Economic Struggles


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Executive Summary

1

Frances economy is in a post-recession rut with rising unemployment and weak GDP growth that has

stagnated for more than two years. High unemployment and lack of meaningful reforms has contributed toPresident Francois Hollande's low approval rating of 12 percentthe lowest rating of any French presidenton record.

This presentation provides background on the economic difficulties facing France, regulatory concerns, andpolicy proposals being considered by the French government. Key highlights are:

Despite weathering the crisis better than other countries, France's GDP growth has virtually stalled

in 2012 and 2013 and unemployment has increased to nearly 11 percent. In 2014, France's GDP isprojected to grow only 0.9 percent, while the OECD average is forecasted to be 2.2 percent.

Political support for President Hollande has evaporated with an approval rating of 12 percent.Despite initial efforts towards improving the business climate and the appointment of the more business-friendly Economic Minister Emmanuel Macron, France has yet to see real reform.

French businesses face a comparatively higher regulatory burden than other global economic

leaders. Tax rates and trade costs for French businesses also show that the cost of conducting business inFrance remains comparatively high. Although these alone do not account for its recent economic difficulties,improving the business climate could improve growth of domestic firms and attract FDI.

However, Frances difficulties are part of a pan-Eurozone slowdown. Since Maastricht, Frances GDPper capita has grown at similar rates as Germany but below that of the U.K. and the U.S. Overall, France'scontribution to global GDP is now four percent, down from five percent in 1992.


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Despite Weathering The Crisis Better Than Some,France's Economy Has Shown Stagnant Growth

World Bank Data, GDP Growth (Annual %), 2004-2013

OECD, GDP Growth (Annual %), 2014 2

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

20082007 20132012201120102009Percent

GDP Growth (Annual %) DEUUSAGBRFRA

France is expected to

achieve only 0.9%GDP growth in 2014,compared with 1.9%projected for Germanyand 2.2% projectedfor the OECD average

GDP Growth In 2014


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Unlike Others, The French Unemployment Rate HasContinued To Increase Since The Recession

OECD, Unemployment, Total (% Of Total Labor Force), Quarterly, 2009-2014;

OECD, Unemployment, Youth Total (% Total Labor Force 15-24), 2008, 2013 3

4

5

6

7

8

9

10

11

Percent

DEU

USA

GBR

FRA

201420132012201120102009

Unemployment (% Of Total Labor Force)

France and Germany'sunemployment gap isparticularly apparentwith regards to youth

unemployment, whichreached 23.9% inFrance in 2013, versus7.9% in Germany

Frances youth

unemployment wascomparatively higheven before therecession, at 18.6% inFrance and 10.6% inGermany in 2008

Youth Spotlight


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However, France's Growth Is In Line With The BroaderEurozone, While Unemployment Is Still Relatively High

4

2726

16161413

121110988

77655

PRT

CYP

ESP

GRC

SVK

IRL

LVA

FRA

SVN

EST

BEL

FIN

NLD

LUX

MLT

DEU

AUT

2013 Eurozone Unemployment (% Total Labor Force)

4.1

2.42.0

0.90.80.50.40.30.2

-0.3-0.8-1.1-1.2-1.4-1.4

-3.9

-6.0

ESP

PRT

SVN

FIN

GRC

CYP

FRA

BEL

IRL

NLD

AUT

SVK

EST

DEU

LUX

LVA

MLT

2013 Eurozone GDP Growth (Annual %)

IMF World Economic Outlook Database, April 2014

GDP

Weak growth is a pan-Eurozone problem thathas slowed growth for allbut some of the groups

smallest economies.

Frances 2013 GDP

growth remains in linewith the largestEurozone economies.

Frances greater

economic challenge liesin its unemployment rate,which is more closelyaligned with the smaller,more volatile economiesof the Eurozone.

Unemployment


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Longer-Term, Frances Share Of Global GDP HasDepreciated At A Slower Pace Than Germanys

World Bank Data, GDP Per Capita (Current $US), 1992-2013; GDP (Current $US), 1992-2013 5

+76%+78%

DEU

45

26

FRA

41

23

GBR

39

19

USA

53

25

+108%

+105%

GDP Per Capita, Current $US, Thousands,1992-2013

8

54

26

543

22

-24%

-41%-33%

DEUFRAGBRUSA

-14%20131992

Percent Share Of Global GDP, Current $US1992-2013

With longer-term GDP per capita growthin line with Germany, but below the U.S.and UK

France's contribution to global GDP has

depreciated less than Germany's but morethan UK and the U.S


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Low Approval

This Year The Gov't Has Restructured Twice AndHollande's Approval Rating Has Fallen To New Lows

Hollande (IFOP); Mitterand (IFOP); Chirac (TNS-Sofres); Sarkozy (Viavoice) 6

Frances economic woes

have forced PresidentFrancois Hollande to

restructure thegovernment twice during2014.

President Hollandereplaced Frances

Economic Minister Arnaud

Montebourg with the morecenter-right EmmanuelMacron last August.

The French governmentannounced in August2014 that it would not

meet 2015 deficitreduction commitments tothe European Union.

S&P cut France's outlookfrom stable to negative inOctober 2014. S&P

maintains Frances AA/A-A1+ rating, which waslast downgraded inNovember 2013.

Weak OutlookGov't Restructuring

Hollande

(2014

)

Mitterand

(1991)

Chirac

(2005)

Sarkozy

(2011)

Lowest Approval Rating OfPresidency (Percent)

30

24

22

12


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Frances Businesses Are Under Greater Regulatory

Pressure, Contributing To Slow Economic Growth

World Bank Data, Ease Of Doing Business Index, 2013 7

4

10

21

38

GBR

FRA

USA

DEU

Ease of Doing Business Index 2013 (1 =Most Business Friendly Regulations)

Frances Regulatory Environment

Burden On Businesses:When ranked on the World Banks Ease

of Doing Business Index, Frances

regulatory environment is ranked behind

other global competitors.

Ease Of Doing Business IndexThe Ease of Doing Business Indexmeasures the efficiency of an economys

regulation by examining 11 topic areas,including access to credit, ease of

starting a business, permitting, payingtaxes, protecting investors, and others.


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The French Labor Tax Rate Is Higher Than Many OtherCountries' Total Tax Rate

World Bank Data, Labor Tax And Contributions (% Of Commercial Profits); Total Tax Rate (% Of Commercial Profits), 2013 8

52%

22%

10% 11%

13%

28%

36%

23%

DEU GBR

34%

46%

USA

49%

FRA

65%

Total Tax As A Percent Of Total CommercialProfits (%), 2013

Labor Tax

Other

Frances Tax Burden

In 2014, President Hollandeoffered businesses a30billion payroll tax cut in aneffort to provide relief from

Frances labor tax. The cut isexpected to reduce averagetotal wage bills for employersby 5.4%.

Frances government has

already provided businesseswith20 billion in tax breakssince the Great Recession.


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French Businesses Face Higher Costs And Trade At ASlower Rate Than The U.S., U.K., And Germany

World Bank Data, Cost To Import, Export ($ Per Container), 2014; Time To Import, Export (Days), 2006, 2014 9

10

6

8

9DEU

GBR

USA

FRA905

GBR 1,005

USA 1,090

FRA 1,335

DEU

Cost To Export 2014 ($ PerContainer)

11

5

6

7

USAGBR

DEU

FRA

Time To Export 2014 (Days)

Time To Import 2014 (Days)


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France Has Earned A Reputation For OverregulationAnd Hostility Towards Foreign Direct Investment

OECD, Foreign Direct Investment, 2004-2013 10

FDI To France, 2004-2013, In Billions Of US Dollars

5

25

3934

24

64

96

72

85

33

0

10

20

30

40

50

60

70

80

90

100

$Billions

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

-95%

Reputation For Overregulation

Layered Bureaucracy: Francesbureaucracy includes multiple stateand local governing bodies thatadd to the volume of regulation

Frances 49ers: Effects of

overregulation can be seen in theprevalence of companies with 49employees, a phenomenon thathas occurred as a result of theregulatory changes businessesmust make after reaching a size of50 employees

Culture Of Protectionism: Casessuch as Frances intervention in the

ultimately successful acquisition ofAlstom by GE have shown howFrances protectionism risks

reducing foreign investment


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Economy Minister Emmanuel Macrons Prescription

For Frances Ailing Economy

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Initiative Description

Responsibility Pact Payroll tax cut for businesses

Although not Economy Minister at the time,Macron played a heavy hand in enacting a

30 billion tax cut for businesses inexchange for hiring pledges

Sunday Trading,Industry SpecificDeregulation

Macrons first round of reforms seek to lift

restrictions on business operating hours onSundays, allow further competition inintercity bus transportation, and deregulateprofessions in the health and judiciarysectors

UnemploymentBenefits, 35 HourWork Week

Macron has said he would supportreexamining Frances 35-hour work weekand unemployment benefit system, bothstaples of Frances social welfare state

Despite rhetoric, Macron has yet to initiateaction on these topics

Macrons arrival has brought

with it little in the way of realpolicy change and more rhetoricon whats needed to turn around

Frances economy.

His strong language has servedprimarily thus far as a signal toGermany and EU leaders thatreal reform is on the way.

That being said, there is morepolitical opportunity for reformsthan in years past. Macrons

challenge lies in balancingFrench ideals of a strong welfarestate while working to improveFrances business climate.

For more details the OECDpublished a report here.

Our Take
http://www.oecd.org/gov/regulatory-policy/betterregulationineuropefrance.htmhttp://www.oecd.org/gov/regulatory-policy/betterregulationineuropefrance.htm

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HPS the French Dis-Connection