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France Economic Outlook by Alain Henriot Delegate Director, Coe-Rexecode Kiel - 16th March 2010 1 - A better resilience of the French economy to the crisis than other Euro area countries GDP (in volume terms) quarter-on-quarter, % GDP (in volume t erms) 6 y-o-y, % 1.5 1 4 0.5 0 2 -0.5 -1 Euro area France 0 -1.5 France Euro area -2 -2.5 -2 -3 -4 -6 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 ©Coe-Rexecode -2 • 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 -3 • Different phases in the recovery process : Industrial production index 120 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? 20 5=10 110 100 90 80 Manufacturing Manufacture of fo d products and beverages Electri cal and el ectronic equipment; machi ne equipment Manufacture of transport equipment Other manufacturi ng 70 2005 2006 2007 2008 2009 2010 © Coe-Rexecode -4 2 – What can we learn from business surveys? France Industri al Confidence Indicator Eur opean Commis sio n 15 PMI in dex - Reut er s Balance in % 65 60 0 55 50 -1 5 45 40 -3 0 35 -4 5 30 90 92 94 96 98 00 02 04 06 08 10 97 98 99 00 01 02 03 04 05 06 07 08 09 10 ©Coe-Rexecode -5 • What can we learn from surveys? (2) France Service Confidence Indicator European Commis sio n 30 PMI in dex - Reut ers Balance in % 70 65 15 60 0 55 50 -1 5 45 -3 0 40 90 92 94 96 98 00 02 04 06 08 10 97 98 99 00 01 02 03 04 05 06 07 08 09 10 ©Coe-Rexecode -6 • What can we learn from surveys? (3) France Construction Confidence Indicator European Commis sio n 40 Balance in % 20 0 -2 0 -4 0 -6 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 ©Coe-Rexecode -7 • 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? France Underlying growth 6 % annual rate 4 2 0 -2 -4 -6 2001 Low phase of the growth cycle Recession 2002 2003 2004 2005 2006 2007 2008 2009 2010 -8 3 – Which engines for economic growth? 1. Inventories: in the industry, the level of inventories is now considered as very low, it can help to support future stock building France: monthly business survey (goods-producing industries) Finished-goods inventory level Change in inventories: contibution to GDP growth 2 1.5 30 Balance s. a, in % 1 25 0.5 0 20 -0.5 15 -1 -1.5 10 -2 5 -2.5 January April 2008 July 2008 2008 October 2008 January April 2009 July 2009 October 2009 2009 0 2005 2006 2007 2008 2009 2010 © Coe-Rexecode France Germany -9 • 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 Households real disposable Con sumpt io n in man uf act ur ed goods % 8 23 Chained bil ion euros 3.7 Manufactured goods (LHS) Automobiles (RHS) 6 22 3.5 21 3.3 20 3.1 19 2.9 18 2.7 4 2 0 -2 y-o-y, % quarter-on-quarter, % -4 -6 17 2002 2003 2004 2005 2006 2007 2008 2009 2010 2.5 02 03 04 05 06 07 08 09 10 ©Coe-Rexecode - 10 • Which engines for economic growth? (3) 3. Investment: the low level of capacity utilisation will hamper the recovery in investment France Capacity Utilization Manufacturing 90 % 86 82 78 74 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 INSEE survey ©Coe-Rexecode - 11 • 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 France 130 2005=100 120 110 100 90 Export performance Price competitiveness 80 70 2002 2003 2004 2005 2006 2007 2008 2009 Export performance: export volumes/world demand addressed to France Price competitiveness: national export prices/export prices of competitors - 12 • 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 GFCFGeneral government % 12 y-o-y, % quarter-on-quarter, % 9 6 3 0 -3 -6 -9 -1 2 2002 2003 2004 2005 2006 2007 2008 2009 2010 ©Coe-Rexecode - 13 4 – What prospect for the labour market? France Emplo ymen t - pr iv at e sect or 200 Un emplo ymen t Quarte rl y changes - th ousands of pers ons 12 % 3.5 11 3.2 10 2.9 9 2.6 100 0 -1 00 8 2.3 Unempl o yment ra te (L HS) Unempl o yed (th ousands of pers ons) (RHS) -2 00 7 91 93 95 97 99 01 03 05 07 09 11 2.0 91 93 95 97 99 01 03 05 07 09 11 © Coe-Rexecode - 14 • In France, productivity per employee has already returned to the pre-crisis level USA Euro area 2008q1=100 106 2008q1=100 102 104 100 102 100 98 GDP Employment Producti vi ty 98 94 96 GDP Employment Producti vi ty 96 1 2008 2 3 4 1 2009 2 3 4 1 2010 94 1 2008 2 3 4 Germany 1 2009 2 3 4 1 2010 2 3 4 1 2010 France 2008q1=100 102 2008q1=100 102 100 100 98 98 96 GDP Employment Producti vi ty 94 92 1 2008 2 GDP Employment Producti vi ty 96 3 4 1 2009 2 3 4 1 2010 94 1 2008 2 3 4 1 2009 ©Coe-Rexecode - 15 • Temporary jobs have been back on a rising trend, but it is probably the result of higher demand in the car industry France: temporary jobs 500 Thousands of persons 450 400 350 300 250 1 2005 2 3 4 1 2006 2 3 4 1 2007 2 3 4 1 2008 2 3 4 1 2009 2 3 4 1 2010 - 16 • Forecast 2010 -2011 2009 2010 2011 GDP -2.2 1.7 1.4 Private consumption 0.8 0.9 0.8 Total investment -7.0 -1.1 2.4 Of which: business investment -7.7 -0.8 2.5 Residential construction -8.1 -3.5 1.7 Inventories change (contribution to GDP, %) -1.4 0.8 0 Exports -11.2 4.5 5.0 Imports -9.7 4.3 4.5 Inflation (annual average, %) 0.1 1.2 1.0 Current account balance (% GDP) -2.0 -2.1 -2.2 Public deficit (% GDP) -7.9 -7.8 -6.9 Unemployment rate (average level, %) 9.1 9.9 10.0 Annual change (%) unless otherwise stated - 17 • In conclusion : has the crisis hit the long-term outlook? … GDP in level terms Level of potential output revised downward but potential growth is not revised after an intitial adjustment Level of potential output and potential growth are revised downward A traditional cycle with an unusual magnitude Potential output unchanged the output gap has to be closed Strong growth to be expected Crisis - 18 • … probably yes ! France GDP (in volume terms) 1700 Chai ned bi l ions of euros at an ual rate 1650 1600 1550 1500 1450 2002 2003 2004 2005 2006 2007 2008 2009 2010 © Coe-Rexecode - 19