• While the Eurozone’s recovery is slowly gaining traction, the French economy appears to be negatively diverging away. Cebr forecasts see output expanding by a mere 0.8% over 2014, having barely grown since 2012. What’s more, the pace of expansion in 2014 is low even compared to the moderate 1.1% expected for the Eurozone as a whole.
• Significant challenges lie ahead for the French economy in terms of improving damaged competitiveness and reducing structural unemployment. Moreover, the EU continues to put pressure on France to consolidate its public finances with a budget deficit within the limit of 3.0%. Over 2013, the budget deficit stood at 4.3% of GDP.
• Low political capital among French politicians, especially the President, Francois Hollande, has so far delayed fiscal consolidation, but sooner or later France will have to take tough decisions to improve public finances.
• These necessary government spending cuts will negatively impact domestic demand, as the resulting high rate of unemployment will weigh on household consumption. As such Cebr expects the pace of output growth to remain modest in the outer years.
• Living standards will also take some time to improve: even though French GDP recovered to its pre-crisis peak in 2011, GDP per capita remains below pre-crisis levels and is not expected to recover until 2017.

 

Danae Kyriakopoulou, Cebr Economist and main author of the report, said: “Whilst too much noise has been made about the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) and their slow progress in enacting reforms, there is also a French elephant in the Eurozone room that no one dares to speak about. Huge challenges lie ahead for France in terms of consolidating its public finances, improving damaged competitiveness, and reducing high structural unemployment. However, there is very little political capital in place to implement such reforms – Hollande’s approval ratings have been very low throughout the year and the arrival of Manuel Valls has not brought enough dynamism. The risk that the French economy will lag behind its neighbours in enacting reforms is not a trivial one. While the troubles of the region’s periphery have so far proven manageable, a crisis in the bloc’s second-largest economy could have dramatic consequences for the viability of the currency union and push the Eurozone to breaking point.”

 

Table 1: French real GDP and real GDP per capita growth rates

 

	GDP	GDP per capita
2014	0.8%	0.3%
2015	1.2%	0.7%
2016	1.4%	0.9%
2017	1.5%	1.0%
2018	1.6%	1.1%
2019	1.6%	1.1%

 

Source: IMF, Cebr analysis