If a recession is defined by two consecutive quarters of negative growth, it can be said with atradius that France has entered its second recession in four years after the 0,2% drop in GDP in the first quarter of this year, followed by a similar decline in the fourth quarter of 2012. Indeed, domestic demand remained subdued , given the stagnation of consumption and gross fixed investments (-0,9%), as a consequence of the fiscal consolidation measures. At the same time, net foreign trade contributed negatively to GDP (-0,2%), given the simultaneous increase in imports (+1,3%) and the decrease in exports (-0,5%).
In this scenario, consumer confidence has fallen sharply, largely due to the weak economic outlook and measures that have deterred household consumption (-0,4%), one of the most important stimuli for economic growth. Another negative factor is unemployment, increased to 10,6%.
In March of 2013, industrial production decreased by 4,2%, while construction production fell by 2,9%. Forecasts for manufacturing production this year have been revised downwards (-2,4%, after a 3,1% drop in 2012). A slight increase (+0,8%) is expected in 2014. The manufacturing companies, affected by the slowdown of the domestic economy and of exports, thus find themselves operating in worrying scenarios. Thanks to the decline in investment and international competitiveness, the French share of world exports has decreased by a third since 2002. Uncertainties about future economic developments and low profit margins are leading many French companies to adopt a very cautious attitude towards investments. In response to that, last May the government decided to cut the capital gains tax rate for long-term investors, start-ups and family businesses, a measure that should lead to a gradual improvement, with a modest recovery starting from 2014.
As a result of the credit crunch and government stimulus measures, public debt has increased significantly in recent years, going from 75% of GDP in 2009 to 90% in 2013, despite some austerity measures and tax increases, whereas the 2012 budget deficit was reduced by only 4,8% of GDP, thus missing the target of 4,5 .3,9%. Looking at the Maastricht deficit threshold, forecasts speak of a gradual reduction of the deficit from 3,3% for this year to 2014% for XNUMX. Here, in the face of the downgrade of S&P following that of Moody's, to avoid further negative judgment by all players operating on the financial markets, the French government is forced to address the issue of the deficit. And the best way is to stimulate growth: the evidence suggests that it is the low growth rate that fuels the debt and not vice versa.
Faced with a public debt that will rise to over 90% of GDP in 2013, more measures are urgently needed to curb public spending, the highest in the euro area (57% of GDP). In this regard, the French government plans to reduce public spending by 60 billion euros by 2017, including cutting one billion euros in family allowances for the wealthiest. But he understood that to revitalize the competitiveness of businesses, a reform of the labor market must also be urged. Thus, an agreement was reached last January between the main unions and employers, making it easier for companies to lay off workers and thus reorganize their production during recessions, in exchange for more job training, partly -time and increased job security for workers on short-term contracts. Effectively, if any reduction in public spending is perceived directly, through a drop in demand for goods and services, higher taxes have a strongly negative impact on spending and consumer confidence. Last May the European Commission then guaranteed France two more years to reduce its deficit to less than 3% of GDP, but at the same time it also invited the French government to continue with structural reforms of the labor market and pension systems, such as the opening of closed professions and services markets. Greater freedom of economic action and competition are essential to stimulate consumption and employment, essential factors, both domestically and globally, for competitiveness, growth and debt reduction, much more an accounting austerity as an end in itself. A lesson capable of indicating a path to follow, offering hope and credibility in the future, but which still seems far from being heard in our country.
