France: Returning to its Roots

On this page we present the salient features of the French Economy since the onset of the Great Recession in a global perspective, where the comparison is with the EU28 and the United States.

The first figures below show the path of Real GDP and its components since the recession. We have indexed all variables to the first quarter of 2008 and thus should be taken as relative measures.

GDP and Main Aggregates

The French Great Recession was quite similar to that in the U.S. Both countries saw their economies contract by around 4% and both recovered by 2011. Following its recovery, however, France began to look less like the U.S. and became more similar to the rest of Europe.

The figure above shows the year-on-year growth rate for the U.K. economy. That is the growth for 2010Q1 should be read as the Real GDP growth rate between 2009Q1 and 2010Q1. We rely on these numbers rather than annualized quarterly growth rates as we believe they paint a more reliable picture of long-run trends. The French economy had an almost identical growth profile to the U.S. and subsequently returned to its European roots. Though, France did not contract during the 2012-2013 period as the rest of Europe, its depressed growth combined with Europes higher growth over the following 7 years was enough to bring French and European relative GDP back together.

French consumption was remarkably consistent throughout the recession, but has subsequently been lack-luster compared to the U.S. In fact, French household consumption growth has remained below that of the U.S. since 2010Q2.

The story is much the same with respect to fixed capital formation. The downturn was more forgiving for the French economy than the rest of the EU, however, the two have almost come back together.

 

The divergence in trade between the French and other EU member nations remains more persistent. French imports recovered a year faster than the rest of the EU and have thereafter grown at about the same rate, settling around a year-on-year growth rate of 5% since 2014Q1.

French exports are a reflection of French imports: the recovery was slower than the rest of the EU, but year-on-year export growth between the two was quite similar through 2014Q1. Since then, however, year-on-year export growth has been 0.3 and 0.8 percentage points higher among the EU28 than France itself.

 

The Labor Market

French data is not readily available for all measures of interest in the Eurostat database, so we only present the unemployment rate here. From this limited information available to us here, the French labor market is weak compared to the rest of the West. As with the Netherlands and Spain, unemployment saw an noticeable rise during the Great Recession and the after-shock. Moreover, high French unemployment has been more persistent than in other countries.

The Role of Government

The French entered the Great Recession with a significant and increasing stock of outstanding debt.  The figure below shows the response as measured by the debt-to-GDP ratio.

Following the Great Recession, the French debt-to-GDP ratio has increased by over 30 percentage points. Despite almost reaching 100%, it’s current trend suggests that it has not yet leveled off. Moreover, French government spending has grown at a year-on-year rate of 1.5% on average since 2010Q1, noticeably faster and more persistent than the rest of the West. The consistent pattern of government consumption in France suggests to us a shift in long term fiscal policy.

 

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