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06/12/2016

Think tank: France will return to growth

Euro & Finance

Think tank: France will return to growth

French economy set to return to growth in 2014. [shutterstock]

An independent research institute predicts a bright future for the French economy, but it may take years to benefit employment levels, EurActiv France reports.

The French Economic Observatory (OFCE) released economic forecasts for 2014/2015 which paint a dark picture for French employment levels, which continue to suffer from austerity measures, but says France will eventually return to economic growth.

A return to growth is indeed expected for the wider Eurozone. After a decrease of 0.4% in 2013, the OFCE expects GDP to rise by 1.3% in 2014. Despite this encouraging news, “it will take a long time for the Eurozone to return to pre-crisis employment figures (7%)”, claimed the research institute.

Reducing austerity

The return of growth in France is also promising. “The return to economic growth and confidence is here”, states the OFCE. This should also see a reduction of austerity measures in 2015, which in turn will allow French GDP to increase by 1.2% in 2014 and 1.6% that year. This is good news for a country in which growth has been sluggish since 2010.

The favourable climate is due in part to the reduction of austerity measures compared to 2012 and 2013. The repercussions of cuts should be about half as important in 2014 and 2015 than between 2012 and 2013. However, the cuts will still lead to a 0.9 point loss in economic growth in 2014 and 0.7 in 2015.

France is not an isolated case. “Economic growth in developed countries remains badly affected by efforts to consolidate the budget and reduce public deficit,” explains the OFCE.

>> Read: France will keep its promises, says Manuel Valls

Persistent unemployment

On the negative side, renewed growth will not affect employment levels straight away. In France, the number of jobseekers should continue to rise to 10.5% until the end of 2015.

Despite a timid return to growth, it should reduce austerity measures and allow companies to partly restore their productivity and profit margins, which have suffered during the crisis.

According to the OFCE, French companies made fewer redundancies than their European counterparts. It estimates that there is a surplus of 190,000 French workers, which will benefit the industrial sector.

“We are in a temporary economic climate which is improving, companies are returning to a moderate level of activity. However, in 2014-2015 this climate will be worsened by austerity measures,” underlined Eric Hayer of the OFCE.

Background

With an annual deficit of 4.1% of GDP in 2013, France has exceeded budgetary limits established by the Maastricht Treaty.

The European Commission launched measures to deal with excessive deficit and gave France an extra two years to reduce its public deficit to 3%.

>> Read: Barroso urges ‘credible reforms’ in France in return for deficit grace period

French public debt is almost at 95%. The rate of tax contributions is already at 46%. France has proposed a stability plan to reduce governmental spending by €50 billion by 2017.?

>> Read: France will keep its promises, says Manuel Valls

Further Reading

French Economic Observatory