Economic Conditions in France Prospects for

Transcription

1 Economic Conditions in France Prospects for Hervé LE BIHAN Banque de France EUI nomic Workshop April

2 Overview Outline Short -term outlook The fiscal context Prospects for the components of demand Inflation Summary of recent forecasts 2

3 Short-term outlook Mild recovery is under way GDP just reached its 2008 level GDP (Index, 2008q1=100)

4 Short-term outlook Surveys point to picking-up of activity Latest BdF short-run forecast for GDP in 2014 Q1: +0.2% (q-o-q) 1.5 France: Business climate indicators in industry (standardized data) 1.5 Production expectations in INSEE, BDF and PMI manufacturing surveys (standardized data) INSEE BDF PMI INSEE Personal production expectations BDF Production expectations PMI New orders Caveats: Prospects are gloomy for residential investment over the several quarters ahead Low consumption growth expected in Q1 following spike in Q4 driven by temporary factors 4

5 The Fiscal Challenge Government Deficit 2013 (EDP notification ) : 4.3% of GDP Fiscal Developments (% of GDP) Total receipts Total expenditures Balance Some consolidation through higher taxes in 2012 and 2013 Tax receipts disappointing in 2013 So far curbing of expenditure/gdp ratio not started 5

6 The Fiscal Outlook Two main goals of current fiscal policy Spur competitiveness of the French economy Fiscal consolidation On competitiveness side, strategy in place since the CICE 20bn targeted cut in labor cost (Corporate Tax Credit) gradually implemented Financed by VAT increase, spending decreases. New Government appointed 31 March Details on fiscal plans just released on 23 April: Stability Program for

7 The Fiscal Challenge Details on fiscal plans just released on 23 April: Stability Program for Includes the Responsibility and Solidarity Pact further cuts in social contributions ( 10bn)- targeted towards wages <3.5 SMIC. employee social contribution (cut 5bn ) Plus: overall consolidation through spending restrictions. Among anouncements: local government spending, health insurance, freezing of social benefits and civil servant general wage increases. Amounting to 50 bn (2.5% of GDP) at horizon Public spending planned to be nearly frozen in volume Main issues: Will spending restrictions fully materialize? Will response of private investment and employment offset adverse effect of consolidation? 7

8 Components of aggregate demand: consumption Household Saving Ratio, relatively high and stable since the crisis. Saving ratio

9 Components of aggregate demand: corporate investment Conflicting factors Real interest rates are historically low, uncertainty has arguably diminished NFC margin rate at historical low. Corporate Debt at historical high Corporate Investment/Value Added ratio NFC margin rate Corporate Investment/Value Added ratio (%) NFC Margin rate (%) CICE and Responsibility Pact aim to restore investment through profit margin improvement 9

10 Trade Export performance : some recent flattening After protracted loss in market share. Export performance (ratio of export to world demand)

11 Low Inflation Inflation (%, yoy) HICP Inflation HICP Core inflation 11

12 Low Inflation Import and Value Added deflators (%, y-o-y) Import Deflator Value-Added Deflator 12

13 Wages Nominal Wages (yoy %) Base wage Average per head wage Inflation (HICP) 13

14 March 2014 Low inflation surprise Inflation (%, yoy) VAT increase in Jan 2014 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M1 M2 M HICP Inflation HICP Core inflation March low inflation outcome: mild climate conditions & unprocessed food; rebates in cars But also pass-throuh of VAT seems over (reflecting the tax Credit?) 14

15 Some recent forecast Some Forecasts GDP ( %) Gov. Balance (% GDP) Inflation (%) EC (Winter Forecast) IMF OECD Government (Stab Prog.) Consensus Fcast (April 14)

16 Some recent forecasts GDP growth forecast dispersion CF (max) * CF (max) * Programme de stabilité (1.7) 1.0 Programme de stabilité (1.0) Consensus Forecast mean(0.86) 1.2 Consensus Forecast mean (1.25) * CF (min) 0.8 * CF (min) 16

17 Appendix 17

18 National Accounts Q MOYENNE Acquis GLISSEMENT ANNUELLE fin ANNUEL AU T4 I II III IV I II III IV T OFFRE ET DEMANDE Produit intérieur brut Importations Exportations Consommation des ménages Consommation des APU Investissement total dont : Investissement des SNF-EI Investissement des ménages Investissement des APU Demande intérieure totale

19 Evolution of manufacturing production Evolution of manufacturing production IPI in manufacturing (monthly, 2010=100) IPI in manufacturing IPI in manufacturing (monthly, (quarterly 2010=100) average, 2010=100) IPI in manufacturing IPI manufacturing (quarterly in Q1 (carry-over average, after 2010=100) February) IPI in manufacturing in Q1 (carry-over after February)

20 Housing starts and HH investment Housing starts, February (x12) : Housing starts, 12 m average, February (x 12) : Houshold investment in construction, Q : Housing starts (number of dwellingsx12, sa, RHS) Housing starts, 12 month average (number of dwellingsx12, sa, RHS) Houshold investment in construction (M, LHS) 20

21 21

22 Unemployment Rate TXCHO_BIT