"
"
France’s good showing in comparison Cumulative decrease in quarterly GDP
(2008-2009, from peak to trough)
with its main partners
0%
The global fi nancial crisis triggered in September
-1%
2008 by the collapse of the US bank Lehman Bro-
-2%
thers has had a massive impact on the world eco-
-3%
-3,4%
nomy, producing similar symptoms in all countries :
-4%
-3,9%
-4,1%
-5% Financial conditions have gotten noticeably worse, due to
-5,7%
-6%
-6,5%
the drying-up of the interbank market, combined with tou-
-7%
-6,7%
gher lending terms, higher borrowing costs for companies
-8%
-8,3%
and tumbling stock markets ;
-9%
JapanGermanyItalyUKSpainUSFrance GDP has been shrinking as business and consumer confi-
sources : National Accounts
dence have dropped. The result has been a marked decline
in corporate investment, major destocking and a contrac-
France’s good showing here in comparison with its main
tion in world trade, followed by a sharp deterioration in la-
partners was not observable prior to the crisis. From 2000
bour markets, particularly for industrial workers.
to 2008, for example, the country’s GDP increased at vir-
tually the same rate as in the euro area as a whole (with an
The scope of the current downturn is without precedent
aggregate increase in annual GDP of 18.5 %, compared to
since 1945. The aggregate GDP of the OECD countries
19.1 %), while the slight lead recorded by France between
contracted by 4.5 % from the peak attained in the first
2002 and 2005 was offset by less vigorous growth from
quarter of 2008 to the trough recorded in the first quar-
2006 to 2008. During the same period, from 2000 to 2008,
ter of 2009. However, the slide in economic activity since
aggregate GDP growth was weaker in Japan (13.7 %), but
the spring of 2008 has varied from country to country, re-
stronger in the United States (23.5 %) and the United Kin-
flecting both the specific intensity of endogenous shocks
gdom (25.1 %).
(often related to previous excesses in debt levels and the
state of the country’s financial institutions) and the grea-
ter or lesser resilience of the various economies to glo-
GDP growth (2000-2008)
5,0
bal recession (which depends mainly on how significant
%
4,5
the wealth effect is, how open the economy is to world
3,93,9
4,0
trade, how effective automatic stabilisers are and what
3,5
stimulus packages have been implemented). In Europe,
2,9
3,0
Euro area France
the recession has proved extremely abrupt in Germany
2,7
2,5
2,3
2,5
(- 6.7 % from peak to trough), Italy (- 6.5 %) and the United
2,2
2,1
1,91,9 1,9
2,0
Kingdom (- 5.7 %), milder in Spain (- 4.1 %) and above all in
1,7
1,5
France (- 3.4 %). The French economy continued to hold up
1,1
1,0
0,9
0,8
1,0
well in the second quarter of 2009, making France the only
0,7
0,4
major country aside from Germany and Japan to report a
0,5
return to growth.
0,0
200020012002200320042005200620072008
source : Eurostat
This median position achieved by France seemed likely to
last. Up until the end of 2008, the average growth fore-
This growth gap is significant enough to warrant an analy-
casts for 2009 presented in Consensus Forecasts showed
sis of the causes behind France’s good economic perfor-
very little difference between France and the euro area as
mance compared with that of its main partners (the larger
a whole. The forecast gap, however, has been steadily wi-
euro area countries, the United Kingdom and the United
dening since then as signs of the French economy’s grea-
States).
ter resilience have accumulated. In September 2009, the
European Commission predicted that in 2009, GDP would
contract by 2.1 % in France and by 4.0 % in the euro area,
This report presents and assesses the three most commonly
i.e. by twice as much. This divergence is further corrobo-
cited explanations for the country’s greater resilience: i) the
rated by the Business Climate Indicator, a more qualitative
relatively balanced character of economic growth observed
indicator that is not subject to adjustment. The Economic
in France over the past several years and the sound condi-
Sentiment Indicator published by the European Commis-
tion of its banking industry made a sharp correction less ne-
sion shows a deeper business cycle trough in the euro area
cessary than in other countries and softened the impact of
than in France, a gap that has been noteworthy since late
the contraction of world trade; ii) the French social welfare
2008.
system contains automatic stabilisers that have cushioned
the country against the downturn; iii) France’s economic
policy response has been appropriate, providing faster and Business climate (industrie and services)
100 : long-term average
more effective support to economic activity.
120
110
The French economy has shown grea-
100
France
ter resilience to the crisis
Euro area
90
A slightly simplified account of the deep economic crisis
80
affecting the entire developed world since the autumn of
70
2008 would go something like this. The downturn in the
US real estate market weakened the balance sheets of
60
jan-07apr-07july-07oct-07jan-08apr-08july-08oct-08jan-09apr-09july-09
financial institutions, and the crisis of confidence among
source : European Commission
those institutions led to an unprecedented freeze in inter-
Consumer spending has held up better in France than in
bank lending and much stiffer credit terms. The resulting
the euro area as a whole (where it has decreased) ; at the
higher cost of borrowing and widespread fears of syste-
same time, total capital investment has declined more mo-
mic collapse prompted consumers to rein in spending and
derately and foreign trade has had less of a negative im-
businesses to scale back capital expenditures. Lastly, the
pact on the economy. These three factors are of roughly
decrease in aggregate demand combined with a major
equal weight in explaining France’s better performance
turn by companies toward inventory reduction provoked
since the third quarter of 2008 (with GDP contracting by
an abrupt contraction of world trade.
2.6 % year-on-year, versus 4.6 % in the euro area). It is
also worth pointing out that this better performance cannot
Using this simplified account, we can therefore posit that
be attributed to delayed inventory adjustments by compa-
the crisis has more severely affected any country :
nies. Over the past year, the impact of destocking on GDP with marked internal imbalances, particularly a real estate
was nearly twice as significant in France as in the euro area
bubble, coupled with debt-financed household consump-
as a whole, and the adjustment of inventories to a lower
tion ;
level of demand has probably proceeded faster here than with a large financial industry and a banking sector hea-
elsewhere. As a result, future inventory trends are unlikely
vily exposed to the riskiest assets ;
to penalise GDP growth, and that in turn should work in with an export-driven growth model that makes the
France’s favour in the coming quarters.
country highly vulnerable to swings in world trade.
Measured by these three yardsticks, the shock to the Contributors to GDP growth (Q3 2008 - Q2 2009)
French economy has been less pronounced than in most
3,0%
other mature economies.
2,0%
1,0%
0,0%
The real estate market downturn has had only a limited impact
in France
-1,0%
Interaction between the real estate and financial sectors
Euro area
-2,0%
France
was one of the major triggers of the financial crisis. With
-3,0%
France-euro area gap
interest rates maintained at a low level in most mature eco-
-4,0%
nomies since the early 2000s and looser lending terms in
the United States and several other countries (including the
-5,0%
GDPConsumer Public InvestmentChange Foreign
subprime lending market), households had easy access to
spending spending of inventories trade
credit, which spawned rising property prices wherever
sources : Insee, Eurostat
2 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
France, which was lower than in the United Kingdom and
supply (chiefly of real estate) was constrained. The trend
Spain, but higher than in the United States.
toward securitisation of mortgage loans probably contribu-
ted to those looser lending terms, since it made lenders
This increase cannot be attributed to rising household
less concerned with the ability of borrowers to repay their
income alone ; it may partially refl ect a catch-up process
loans. The boom in new financial instruments (especially
following the market downturn in the fi rst half of the 1990s.
credit default swaps) further increased credit supply and
In any event, real estate prices prior to the crisis were
fuelled the rise in property values.
signifi cantly less over-valued in France than elsewhere.
The OECD has calculated the ratio of house prices to
That rise worked in turn to sustain consumer spending,
household disposable income, with 100 taken as the long-
both directly and indirectly. In direct terms, it allowed hou-
term average. In France, this ratio stood at 139.2 in 2007,
seholds in some countries to borrow from credit institu-
as compared to a peak of 167.6 in Spain (2006), 150.7 in
tions against the higher value of their homes, obtaining
the United Kingdom (2007) and 111.3 in the United States
loans equal to all or part of their unrealised gains. This
(2006).
was particularly true in the United States, where house-
holds borrowed in this fashion anywhere from $150 billion
to $200 billion per quarter between 2004 and 2006, the
Cumulative Consumer spending (Q1 2008-Q2 2009)
2%
equivalent of 7 % of their gross disposable income. In in-
0,7%
1%
direct terms, even in countries relatively untouched by the
0,5%
0%
mortgage equity withdrawal process, escalating property
prices may encourage homeowners to consume more
-1%
and save less if they are confident that their higher home
-2%
-1,7%
-2,0%
-2,4%
equity will translate into a permanent increase in their total
-3%
wealth. The expression “wealth effect” refers precisely to
-4%
-3,8%
this kind of behaviour.
-5%
-6%
This pattern was above all observable in the United Sta-
-7%
-6,7%
tes, the United Kingdom, Ireland, as well as Spain, where
-8%
SpainUKItalyJapanUSGermanyFrance
a sharp rise in mortgage lending and a significant wealth
effect fostered real estate bubbles and boosted consu-
sources : quarterly data
mer spending. In those environments, the property mar-
ket downturn threw the entire process into reverse. The
Property prices (in real terms)
housing supply overhang now stood out starkly, resulting
1997 = 100
260
in a downward price spiral that revealed the low quality of
240
a considerable proportion of mortgage loans, weakened
220
bank balance sheets and depressed consumer spending.
US France
200
Italy UK
In the United States between 2006 and 2008, for exam-
Spain
ple, the percentage of mortgage loans in default nearly
180
(1)
doubled, jumping from 4.5 % to 8 % of the total
.
160
140
In contrast, this vicious circle never got started in countries
120
such as France and Germany, where the wealth effect has
100
traditionally been less pronounced and where stricter len-
80
ding requirements (see details below) tend to keep the risk
199719981999200020012002200320042005200620072008
of real estate bubbles within reasonable limits. The recent
source : OECD
property market downturn in France has proved roughly
comparable to those observed in previous real estate busi-
ness cycles, and consumer spending since early 2008 has
House prices/disposable income per capita
100 = long-term average
held up fairly well in both France and Germany, whereas it
180
has decreased considerably in the other leading European
160
countries and the United States.
US Japan
Germany France
140
Italy UK
Unlike Germany, however, France has experienced a
Spain
120
major real estate cycle, with prices increasing sharply in
the decade preceding the crisis. According to the OECD,
100
from 1997 to 2007, the appreciation in real terms (i.e. after
80
accounting for changes in consumer prices) was 109 % in
60
40
1996199719981999200020012002200320042005200620072008
(1)
Stéphane Sorbe, “Foreclosures in the United States and fi nancial insti-
source : OECD
tutions losses”, Trésor-Economics No. 57, May 2009.
3 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
In 2007 and 2008, France did witness the beginnings of a decline in real estate prices compared to other countries.
real estate market downturn that should be seen in connec- In 2008, according to the OECD, real estate prices were
tion with earlier interest rate hikes during the monetary ti- down 1.8 % in France, versus 2.4 % in Spain, 4.3 % in the
ghtening phase and with the end to loose lending practi- United Kingdom and 6.1 % in the United States (where they
ces, particularly as the trend toward longer loan terms ran had already shed 0.6 % in 2007). This resilience suggests
out of steam). But this downturn, which was accentuated that to a large extent, the previous price increases were
by the crisis, produced only a limited amount of economic not speculative in nature. Historically, loan terms in France
fallout. There were three main reasons for this : have tended to be short, and a process of catching up with
the average for developed countries took place during the
2000s. If we factor this move to longer-term loans into Firstly, the quality of mortgage loans is higher in France.
the equation, the real estate purchasing power of French
Due to a combination of regulatory and cultural factors, the
households currently stands slightly above its long-term
vast majority of such loans are fi xed-rate, with buyers ma-
average. And while the market adjustment process has
king large down payments and lending institutions keeping
probably not run its full course yet, the stabilisation in sales
a close watch on the ability of the latter to repay their loans,
of new housing observed in the fi rst quarter of 2009 would
determined on the basis of income rather than wealth. The
tend to substantiate the claim that on the whole, France
stock of mortgage loans is therefore relatively insensitive
has a healthy property market.
to declining property values and rising interest rates, which
lessens the negative consequences of any downtrend in
In any case, the slide in real estate prices is likely to
the French real estate market for fi nancial institutions.
taper off in 2009 under the infl uence of several factors.
Interest rates on home loans with terms of over one year Secondly, because the wealth effect is less signifi cant
have been heading downward since January. More to
in France, a decrease in real estate prices has only a li-
the point, government policy in the past several months
mited impact on consumer spending. INSEE, France’s
has provided valuable support. The “Scellier” program
institute for statistics and economic studies, has calcu-
encourages rental property investment and renders it
lated that an increase of 1 € in the aggregate wealth of
more lucrative. Likewise, the tax deductibility of interest
French households eventually translates into an increase
payments on mortgage loans made possible by the Act
in consumer spending of 0.4 cents. The wealth effect is
of August 21, 2007 should lessen the current adjustment
much more substantial in the United Kingdom (3.6 pence
to real estate prices in 2009.
per pound) and above all in the United States (5.8 cents
(2)
per dollar)
. Seen in that light, the €347 billion decrease
in the net wealth of French households observed in 2008,
Household savings rate
25
equal to - 3.5%, should eventually reduce their consump-
in %
tion by approximately €1.4 billion, which represents only
20
0.1 % of the total. In the United States, in contrast, whe-
re the wealth effect plays a greater role and household
15
wealth fell much more sharply in 2008 (- $10,880 billion,
i.e. - 18.1 %), the long-range outcome would be a $631
10
billion decrease in consumer spending, an amount equal to
6.2 % of aggregate US household spending. French consu-
5
mers therefore entered the crisis on a comparatively sound
fi nancial footing that has enabled them to go on spending
0
even in troubled economic times. In 2007, French house-
1995 2007 2008 1995 2007 2008 1995 2007 2008 1995 2007 2008 1995 2007 2008
hold debt stood at 94 % of gross disposable income, com-
ItalySpainUKUSFrance
pared to 100 % in Germany, 128 % in the United States,
sources : National Accounts
135 % in Spain and 150 % in the United Kingdom. In ad-
dition, the household savings rate has remained high and
Real estate purchasing power
stable throughout the most recent period—in the vicinity
(relative to long-term average)
of 16%—whereas consumer spending in the United Kin-
100
80
gdom and the United States was partially driven by a subs-
%
60
tantial decline in savings during the 2000s. What is more,
40
20
due to their preference for low-risk fi nancial assets, French
0
households have been less exposed in comparative terms
-20
to the stock market downtrend since 2007.
-40
-60
-80
Last up date : Q2008 Thirdly, France has so far experienced only a moderate
-100
1990199219941996199820002002200420062008
UK (fixed-rate 30-year; no premium over interest rates)
Spain (fixed-rate 25-year; no premium over interest rates)
US (variable average term, variable premium)
(2)
France (15-year fixed term prior to 1999, then longer depending on average term of new loans)
Antonin Aviat, Jean-Charles Bricongne, Pierre-Alain Pionnier, « Riches-
se patrimoniale et consommation : un lien ténu en France, fort aux Etats-
sources : Datastream, OFHEO (US)
Unis », Note de conjoncture de l’Insee, décember 2007.
4 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
The shock to the financial industry was also milder in The unprecedented correction in world trade has chiefl y affec-
France ted export-driven economies
To begin with, the French regulatory system has clearly From September 2008 to February 2009, the volume
helped to limit risk-taking by French banks and thereby of world trade fell by nearly 20 %, that is, at a faster
(4)
made them less vulnerable to economic downturns. pace than following the 1929 stock market crash
. This
(3)
According to the IMF,
contraction has been particularly hard on countries that
the fact that total losses and
have heavily depended in recent years on exports to fuel
write-downs of French banks were below those in
growth. This is particularly true of Germany and, to a
France’s peer countries can in part be attributed to
lesser extent, Japan. In the period from 2000 to 2007,
the “relatively conservative lending practices” pursued
foreign trade accounted for close to 75 % of Germany’s
by those banks and to “the consistent coverage of all
economic growth (and 20 % of Japan’s)—in other words,
lending institutions” by a single supervisory body, the
exports grew much faster than imports. Both countries
Commission Bancaire (Banking Commission). A further
possess a comparatively large manufacturing base, which
indication of the greater resilience of France’s banks is
explains their sensitivity to global demand.
the trend in spreads on credit default swaps (CDSs), used
by investors as protection against default or bankruptcy
by reference entities. The gap between CDS spreads on
During industrial recessions, such a focus becomes a lia-
French banks and on banks in the other major European
bility. Owing to the weight of manufacturing in the Ger-
countries widened substantially between June 2008 and
man economy, and particularly to the tendency of German
May 2009.
industry to specialise in intermediate and capital goods,
exports have gone into free-fall—against a background of
plummeting investment and massive destocking. Germa-
5-year CDS spreads on banks by country
ny has also suffered from the plunge in automobile sales,
00
bps
which are traditionally the fi rst to decline in a downturn,
50
00
and which were further affected by tighter lending terms.
Switzerland
50
UK
Finally, given that imports to Germany tend to be less sen-
France
00
sitive to the business cycle, the country’s balance of trade
Spain
50
Italy
has taken a sharp turn for the worse.
Belgium
00
Germany
50
Value added in manufacturing
00
50
of %
GDP
00
35%
50
0
30%
june-07sept-07dec-07march-08june-08sept-08dec-08march-09june-09
25%
sources : Datastream, DGTPE calculations
20%
15%
NB :
the banks sampled here are HSBC, Barclays, RBS, Lloyds (UK); UBS
(Switzerland); BNP Paribas, Société Générale, Crédit Agricole (France);
10%
Deutsche Bank (Germany); Intesa SanPaolo and UniCredit (Italy); BBVA
5%
(Spain); Dexia and Fortis (Belgium). In calculating each national mean, the
0%
CDS spread is weighted by the bank’s market capitalisation at 1 January
USJapanGermanyItalySpainFrance
2008.
source : OECD (2007), except for Spain (2006)
The situation in France is somewhat different. Manufactu-
Furthermore, France’s fi nancial industry has remained re-
ring, while important, represents a smaller share of natio-
latively small throughout the 2000s. In 2006, the last year
nal output than in Germany and is more oriented toward
for which comparative international data is available, the
the domestic market. That explains why foreign trade
valued added by the fi nancial sector was equal to approxi-
made a negative contribution to French growth from 2000
mately 5 % of GDP in France, versus nearly 8 % in the Uni-
to 2007 ; but it also explains why France has had less
ted States and the United Kingdom. The gradual reversion
trouble weathering the slump in world trade. The overall
of asset values to their long-term mean, tougher lending
impression is that France’s growth model cushions the
regulations and higher capital requirements are already
country against fl uctuations in the global economy (fl uc-
producing fi nancial industry shrinkage, whose impact on
tuations that are closely linked to industrial cycles), whe-
employment and business activity will obviously be greater
reas the German model tends to amplify them.
in countries with large fi nancial sectors.
(3)
International Monetary Fund, France—2009 Article IV Consultation
(4)
Mission Concluding Statement, 16 June 2009. Available on the IMF
Barry Eichengreen and Kevin H. O’Rourke, “A tale of two depres-
website.
sions”, VoxEU.org, 1 September 2009.
5 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
The economic literature bears out this assumption. Accor-
This well-known structural difference between the French
ding to the European Commission, France ranks among the
and German economies is real enough, but its signifi cance
countries in which automatic stabilisers have the greatest
should not be overstated. The effect of a 1-point increase
countercyclical impact, irrespective of the specifi c reasons
in US GDP is to add 0.4 % to Germany’s GDP and 0.3 %
for the shortfall in growth. The effectiveness of automatic
to France’s.
stabilisers thus shows a positive correlation with the size
of public administration, and particularly with the share of
tax revenue in GDP.
The weight of the public sector in Fran-
ce has helped absorb the initial shock
Impact of automatic stabilisers on the business cycle
The considerable weight of public administration in the
French economy heightens the stabilising function of go-
France
Germany Spain UK Italy
vernment spending. With the onset of a recession, social
Effectiveness of automatic stabilisers against shocks to… (in %)
welfare expenditures—chiefl y unemployment compensa-
cons. spending
tion—are increased to offset the decrease in income ear-
23
18 18 18 20
ned by previously employed workers, while tax revenue
investment
9 10 13 9 11
automatically shrinks, since it is partially determined by the
exports 13
10 11 8 11
level of economic activity. The term automatic stabilisers is
productivity
9 10 13 11 7
now used to account for the way in which these two pro-
cesses combine to support economic activity and cushion
source : European Commission estimates based on the QUEST model, 2001
the initial impact of a recession.
Interpretation : i
n Germany, automatic stabilisers would absorb 18 %
The comparatively greater effect of automatic stabilisers in
of a shock to consumer spending which, all other things being equal, would
France probably has to do with the high rate of taxes and
reduce GDP by one point (estimate for the period from 1991 to 2000).
social security contributions and to the country’s generous
unemployment benefi ts. In 2007, tax revenue was equal to
43.3 % of GDP in France, compared to an average of only
Recent IMF estimates point in the same direction. In each
40.4 % in the euro area, 39.5 % in Germany and 36.3 %
year from 2008 to 2010, claims the Fund, automatic stabi-
in the United Kingdom. The only countries in the European
lisers should generate a fi scal stimulus equal on average
Union with a heavier tax burden were Belgium (44.0 %),
to 2.4 % of GDP in France, with comparable outcomes
Sweden (48.3 %) and Denmark (48.7 %).
in Italy (2.6 %) and the United Kingdom (2.5 %), but a
(5)
much lower percentage in the United States
(1.6 %) and
On the expenditure side, the benefi t replacement rate for
Germany (1.6 %). Considering that the latest shock has
job-seekers, that is, the percentage of a laid-off worker’s
proved less severe in France than elsewhere for reasons
previous wage covered by unemployment benefi ts, is also
outlined above, the IMF fi gures appear to corroborate the
comparatively high in France. Any rise in unemployment
assertion that France’s automatic stabilisers have greater
following a decline in business activity should therefore
power to absorb a shock of a given intensity.
lead to a comparatively greater increase in spending on
compensation in France, thereby putting a brake on the fall
In addition to this impact of automatic stabilisers, it is
in household income and helping to sustain the economy.
worth mentioning the stabilising effect of government
spending, which shows only limited change in response
Net initial replacement rate for job-seekers
to the business cycle. The main items here are social
90
in %
85
85
welfare benefi ts (e.g. retirement benefi ts and family allo-
80
wances) and compensation to public sector employees.
77
75
As long as government refrains from making cutbacks,
72
70
70
70
cash welfare benefi ts and public sector salaries continue
66
65
64
64
65
62
to grow at their long-term rate even through periods of
61
60
57
56
economic downturn, when earned income and property
55
53
55
income trend downward. These public spending items
50
50
50
make up a particularly large share of household income
43
45
in France; in 2007, they accounted for 49 % of gross dis-
40
UK US
Italy
posable income, compared to only 38 % in Germany. Mo-
Spain
France
Austria
Japan
Ireland
Finland
Canada
Sweden
Belgium
Australia
Denmark
Germany
Switzerland
Netherlands
Luxembourg
reover, some of those benefi ts were adjusted upward in
2009 to offset high infl ation in 2008, with the result that
source : OECD (2007)
the Government’s countercyclical boost to social welfare
NB :
benefi ts was amplifi ed.
ratio of net income out of work to net income in work. Summary
measure across various family situations and earnings levels for a 40-year-
old worker who has worked continuously since the age of 18 (single, mar-
ried, couple with two children, no children, earnings equal to 67 %, 100 %
(5)
IMF, Global Economic Policies and Prospects, Note for the G20 Sum-
mit held in London on March 13-14, 2009.
or 150 % of average earnings).
6 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
If we compare France to the other major European
It follows that the combination of lower tax and social se-
economies, the impact of its fi scal measures on
curity contributions and undiminished social welfare spen-
growth in 2009 would put the country in the medium-
ding should lead to higher household purchasing power
high range. This view is shared by the IMF, who stated
in 2009, even though aggregate earned income should
last June that “The [French] fi scal response to support
decrease as a consequence of rising unemployment.
aggregate demand in 2009-2010 has been appropria-
te” and observed with satisfaction that “the suitably
sized package of stimulus measures has been front-
Contributors to household purchasing power
loaded and well-diversifi ed” in 2009.
6%
forecast
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
20002001200220032004200520062007200820092010
Earned income Cash transfers, net Property income, net
PCE deflator Purchasing power gains
sources : Insee, DGTPE
France’s Recovery Plan focuses more
on 2009 than similar plans in other coun-
tries, and its average knock-on effect is
comparatively greater
The economic policies initiated by the Government to sup-
port investment, cash fl ow for businesses and purchasing
power for lower-income families have likewise enhanced
France’s economic stability. In addition to benefi ting from
the Recovery Plan provisions unveiled in December 2008
and February 2009, economic activity has received a ma-
jor boost as the measures provided for in the Work, Em-
ployment and Purchasing Power Act (TEPA) have begun to
produce results and the new earned income supplement
(RSA) has come into force. The total quantity of income
injected into the economy amounts to approximately 45
billion €. in the 2009-2010 period.
As regards the total size of the French stimulus package,
the measures announced so far are roughly equal to 2.4 %
of GDP, a rate higher than in Italy (0.9 %) and the United
Kingdom (1.5 %), but lower than in Germany (3.6 %), Spain
(4.5 %) and the United States (5.5 %). This intermediate
status can best be explained by the scope of automatic
stabilisers in France, which provide powerful support to the
economy.
The decision to focus Recovery Plan spending on 2009 has
enabled France to achieve maximum effi ciency by provi-
ding a signifi cant countercyclical boost just when the busi-
ness climate is most depressed. In particular, the car scrap
rebate introduced at the start of 2009 has led to rapid reco-
very in the automobile industry, while measures to bolster
companies’ cash fl ow have partially offset the negative im-
pact of tougher lending terms. And with further measures
designed to support to purchasing power of lower-income
families and promote an accelerated public infrastructure
program, the knock-on effect to the economy as a whole
is considerable.
7 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
Conclusion
Another issue to be considered is the impact of the crisis
on the growth path of economies. The scope and speci-
fi cs of recovery are partially contingent on the capacity of
The comparatively balanced nature of French economic
(6)
any given economy for long-term growth
growth prior to the crisis, the importance of automatic sta-
. Accordingly,
bilisers and an appropriately focused Recovery Plan have
the widening gap since 2008 between France and its main
all played a part in enabling France to perform somewhat
partners might not go away entirely, and the French eco-
better than its main partners in the recent period. The
nomy could eventually come out slightly ahead. To give
country’s economic policies and automatic stabilisers have
two examples, France’s banking sector is in better shape
helped reduce volatility. In and of itself, lower output vola-
than its German counterpart, and the country’s demogra-
tility is good news for citizens in that it makes it easier for
phic trends put France on a more favourable footing than
them to estimate their future earnings.
Germany. The evidence in both cases points toward higher
medium-term growth in France.
A number of the factors that account for the lesser severity
of recession in France, and which can be traced back to the
In conclusion, the greater resilience of the French economy
more balance nature of growth in the country before the
to the crisis in the past several months does not eliminate
crisis, should continue to work in France’s favour. Various
the need for structural reforms to increase France’s me-
models from abroad were predicated on either large-scale
dium-range growth potential. The goal of those reforms
household debt (e.g. the United Kingdom, the United Sta-
should be to raise the rate of employment and workforce
tes) or a heightened focus on exports (e.g. Germany). That
participation, support business investment and increase
suggests that once the crisis is behind us, those countries
productivity, in particular through greater competition in
might not be able to replicate the growth rates they achie-
product and service markets, which is bound to be benefi -
ved in the 2000s, since the need to scale back household
cial to consumers.
debt or shift production to serve the domestic market
would maintain potential growth below the levels attained
in the preceding period. Given that those extremes have
been largely or entirely absent from the French economy,
France would be spared the necessary adjustments and
(6)
Cerra, Valerie and Sweta Chaman Saxena (2007): “Growth dynamics:
could look forward to a recovery at least as vigorous as in
the myth of economic recovery”, BIS Working Papers No. 226, Basel,
Bank for International Settlements.
other countries.
FRANCE - Politique économique is prepared under the authority of the Ministry of the Economy, Industry
and Employment. This paper includes the analyses presented in the Economic, Social and Financial Report associated
with 2010 Finance Bill.
Ministère de l’Economie, de l’Industrie et de l’Emploi, Direction générale du Trésor et de la Politique économique
Télédoc 647, 139, rue de Bercy - 75575 Paris CEDEX 12 - Téléphone : 01 44 87 18 51 - Télécopie : 01 53 18 97 74
ISSN en cours
(2008-2009, from peak to trough)
with its main partners
0%
The global fi nancial crisis triggered in September
-1%
2008 by the collapse of the US bank Lehman Bro-
-2%
thers has had a massive impact on the world eco-
-3%
-3,4%
nomy, producing similar symptoms in all countries :
-4%
-3,9%
-4,1%
-5% Financial conditions have gotten noticeably worse, due to
-5,7%
-6%
-6,5%
the drying-up of the interbank market, combined with tou-
-7%
-6,7%
gher lending terms, higher borrowing costs for companies
-8%
-8,3%
and tumbling stock markets ;
-9%
JapanGermanyItalyUKSpainUSFrance GDP has been shrinking as business and consumer confi-
sources : National Accounts
dence have dropped. The result has been a marked decline
in corporate investment, major destocking and a contrac-
France’s good showing here in comparison with its main
tion in world trade, followed by a sharp deterioration in la-
partners was not observable prior to the crisis. From 2000
bour markets, particularly for industrial workers.
to 2008, for example, the country’s GDP increased at vir-
tually the same rate as in the euro area as a whole (with an
The scope of the current downturn is without precedent
aggregate increase in annual GDP of 18.5 %, compared to
since 1945. The aggregate GDP of the OECD countries
19.1 %), while the slight lead recorded by France between
contracted by 4.5 % from the peak attained in the first
2002 and 2005 was offset by less vigorous growth from
quarter of 2008 to the trough recorded in the first quar-
2006 to 2008. During the same period, from 2000 to 2008,
ter of 2009. However, the slide in economic activity since
aggregate GDP growth was weaker in Japan (13.7 %), but
the spring of 2008 has varied from country to country, re-
stronger in the United States (23.5 %) and the United Kin-
flecting both the specific intensity of endogenous shocks
gdom (25.1 %).
(often related to previous excesses in debt levels and the
state of the country’s financial institutions) and the grea-
ter or lesser resilience of the various economies to glo-
GDP growth (2000-2008)
5,0
bal recession (which depends mainly on how significant
%
4,5
the wealth effect is, how open the economy is to world
3,93,9
4,0
trade, how effective automatic stabilisers are and what
3,5
stimulus packages have been implemented). In Europe,
2,9
3,0
Euro area France
the recession has proved extremely abrupt in Germany
2,7
2,5
2,3
2,5
(- 6.7 % from peak to trough), Italy (- 6.5 %) and the United
2,2
2,1
1,91,9 1,9
2,0
Kingdom (- 5.7 %), milder in Spain (- 4.1 %) and above all in
1,7
1,5
France (- 3.4 %). The French economy continued to hold up
1,1
1,0
0,9
0,8
1,0
well in the second quarter of 2009, making France the only
0,7
0,4
major country aside from Germany and Japan to report a
0,5
return to growth.
0,0
200020012002200320042005200620072008
source : Eurostat
This median position achieved by France seemed likely to
last. Up until the end of 2008, the average growth fore-
This growth gap is significant enough to warrant an analy-
casts for 2009 presented in Consensus Forecasts showed
sis of the causes behind France’s good economic perfor-
very little difference between France and the euro area as
mance compared with that of its main partners (the larger
a whole. The forecast gap, however, has been steadily wi-
euro area countries, the United Kingdom and the United
dening since then as signs of the French economy’s grea-
States).
ter resilience have accumulated. In September 2009, the
European Commission predicted that in 2009, GDP would
contract by 2.1 % in France and by 4.0 % in the euro area,
This report presents and assesses the three most commonly
i.e. by twice as much. This divergence is further corrobo-
cited explanations for the country’s greater resilience: i) the
rated by the Business Climate Indicator, a more qualitative
relatively balanced character of economic growth observed
indicator that is not subject to adjustment. The Economic
in France over the past several years and the sound condi-
Sentiment Indicator published by the European Commis-
tion of its banking industry made a sharp correction less ne-
sion shows a deeper business cycle trough in the euro area
cessary than in other countries and softened the impact of
than in France, a gap that has been noteworthy since late
the contraction of world trade; ii) the French social welfare
2008.
system contains automatic stabilisers that have cushioned
the country against the downturn; iii) France’s economic
policy response has been appropriate, providing faster and Business climate (industrie and services)
100 : long-term average
more effective support to economic activity.
120
110
The French economy has shown grea-
100
France
ter resilience to the crisis
Euro area
90
A slightly simplified account of the deep economic crisis
80
affecting the entire developed world since the autumn of
70
2008 would go something like this. The downturn in the
US real estate market weakened the balance sheets of
60
jan-07apr-07july-07oct-07jan-08apr-08july-08oct-08jan-09apr-09july-09
financial institutions, and the crisis of confidence among
source : European Commission
those institutions led to an unprecedented freeze in inter-
Consumer spending has held up better in France than in
bank lending and much stiffer credit terms. The resulting
the euro area as a whole (where it has decreased) ; at the
higher cost of borrowing and widespread fears of syste-
same time, total capital investment has declined more mo-
mic collapse prompted consumers to rein in spending and
derately and foreign trade has had less of a negative im-
businesses to scale back capital expenditures. Lastly, the
pact on the economy. These three factors are of roughly
decrease in aggregate demand combined with a major
equal weight in explaining France’s better performance
turn by companies toward inventory reduction provoked
since the third quarter of 2008 (with GDP contracting by
an abrupt contraction of world trade.
2.6 % year-on-year, versus 4.6 % in the euro area). It is
also worth pointing out that this better performance cannot
Using this simplified account, we can therefore posit that
be attributed to delayed inventory adjustments by compa-
the crisis has more severely affected any country :
nies. Over the past year, the impact of destocking on GDP with marked internal imbalances, particularly a real estate
was nearly twice as significant in France as in the euro area
bubble, coupled with debt-financed household consump-
as a whole, and the adjustment of inventories to a lower
tion ;
level of demand has probably proceeded faster here than with a large financial industry and a banking sector hea-
elsewhere. As a result, future inventory trends are unlikely
vily exposed to the riskiest assets ;
to penalise GDP growth, and that in turn should work in with an export-driven growth model that makes the
France’s favour in the coming quarters.
country highly vulnerable to swings in world trade.
Measured by these three yardsticks, the shock to the Contributors to GDP growth (Q3 2008 - Q2 2009)
French economy has been less pronounced than in most
3,0%
other mature economies.
2,0%
1,0%
0,0%
The real estate market downturn has had only a limited impact
in France
-1,0%
Interaction between the real estate and financial sectors
Euro area
-2,0%
France
was one of the major triggers of the financial crisis. With
-3,0%
France-euro area gap
interest rates maintained at a low level in most mature eco-
-4,0%
nomies since the early 2000s and looser lending terms in
the United States and several other countries (including the
-5,0%
GDPConsumer Public InvestmentChange Foreign
subprime lending market), households had easy access to
spending spending of inventories trade
credit, which spawned rising property prices wherever
sources : Insee, Eurostat
2 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
France, which was lower than in the United Kingdom and
supply (chiefly of real estate) was constrained. The trend
Spain, but higher than in the United States.
toward securitisation of mortgage loans probably contribu-
ted to those looser lending terms, since it made lenders
This increase cannot be attributed to rising household
less concerned with the ability of borrowers to repay their
income alone ; it may partially refl ect a catch-up process
loans. The boom in new financial instruments (especially
following the market downturn in the fi rst half of the 1990s.
credit default swaps) further increased credit supply and
In any event, real estate prices prior to the crisis were
fuelled the rise in property values.
signifi cantly less over-valued in France than elsewhere.
The OECD has calculated the ratio of house prices to
That rise worked in turn to sustain consumer spending,
household disposable income, with 100 taken as the long-
both directly and indirectly. In direct terms, it allowed hou-
term average. In France, this ratio stood at 139.2 in 2007,
seholds in some countries to borrow from credit institu-
as compared to a peak of 167.6 in Spain (2006), 150.7 in
tions against the higher value of their homes, obtaining
the United Kingdom (2007) and 111.3 in the United States
loans equal to all or part of their unrealised gains. This
(2006).
was particularly true in the United States, where house-
holds borrowed in this fashion anywhere from $150 billion
to $200 billion per quarter between 2004 and 2006, the
Cumulative Consumer spending (Q1 2008-Q2 2009)
2%
equivalent of 7 % of their gross disposable income. In in-
0,7%
1%
direct terms, even in countries relatively untouched by the
0,5%
0%
mortgage equity withdrawal process, escalating property
prices may encourage homeowners to consume more
-1%
and save less if they are confident that their higher home
-2%
-1,7%
-2,0%
-2,4%
equity will translate into a permanent increase in their total
-3%
wealth. The expression “wealth effect” refers precisely to
-4%
-3,8%
this kind of behaviour.
-5%
-6%
This pattern was above all observable in the United Sta-
-7%
-6,7%
tes, the United Kingdom, Ireland, as well as Spain, where
-8%
SpainUKItalyJapanUSGermanyFrance
a sharp rise in mortgage lending and a significant wealth
effect fostered real estate bubbles and boosted consu-
sources : quarterly data
mer spending. In those environments, the property mar-
ket downturn threw the entire process into reverse. The
Property prices (in real terms)
housing supply overhang now stood out starkly, resulting
1997 = 100
260
in a downward price spiral that revealed the low quality of
240
a considerable proportion of mortgage loans, weakened
220
bank balance sheets and depressed consumer spending.
US France
200
Italy UK
In the United States between 2006 and 2008, for exam-
Spain
ple, the percentage of mortgage loans in default nearly
180
(1)
doubled, jumping from 4.5 % to 8 % of the total
.
160
140
In contrast, this vicious circle never got started in countries
120
such as France and Germany, where the wealth effect has
100
traditionally been less pronounced and where stricter len-
80
ding requirements (see details below) tend to keep the risk
199719981999200020012002200320042005200620072008
of real estate bubbles within reasonable limits. The recent
source : OECD
property market downturn in France has proved roughly
comparable to those observed in previous real estate busi-
ness cycles, and consumer spending since early 2008 has
House prices/disposable income per capita
100 = long-term average
held up fairly well in both France and Germany, whereas it
180
has decreased considerably in the other leading European
160
countries and the United States.
US Japan
Germany France
140
Italy UK
Unlike Germany, however, France has experienced a
Spain
120
major real estate cycle, with prices increasing sharply in
the decade preceding the crisis. According to the OECD,
100
from 1997 to 2007, the appreciation in real terms (i.e. after
80
accounting for changes in consumer prices) was 109 % in
60
40
1996199719981999200020012002200320042005200620072008
(1)
Stéphane Sorbe, “Foreclosures in the United States and fi nancial insti-
source : OECD
tutions losses”, Trésor-Economics No. 57, May 2009.
3 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
In 2007 and 2008, France did witness the beginnings of a decline in real estate prices compared to other countries.
real estate market downturn that should be seen in connec- In 2008, according to the OECD, real estate prices were
tion with earlier interest rate hikes during the monetary ti- down 1.8 % in France, versus 2.4 % in Spain, 4.3 % in the
ghtening phase and with the end to loose lending practi- United Kingdom and 6.1 % in the United States (where they
ces, particularly as the trend toward longer loan terms ran had already shed 0.6 % in 2007). This resilience suggests
out of steam). But this downturn, which was accentuated that to a large extent, the previous price increases were
by the crisis, produced only a limited amount of economic not speculative in nature. Historically, loan terms in France
fallout. There were three main reasons for this : have tended to be short, and a process of catching up with
the average for developed countries took place during the
2000s. If we factor this move to longer-term loans into Firstly, the quality of mortgage loans is higher in France.
the equation, the real estate purchasing power of French
Due to a combination of regulatory and cultural factors, the
households currently stands slightly above its long-term
vast majority of such loans are fi xed-rate, with buyers ma-
average. And while the market adjustment process has
king large down payments and lending institutions keeping
probably not run its full course yet, the stabilisation in sales
a close watch on the ability of the latter to repay their loans,
of new housing observed in the fi rst quarter of 2009 would
determined on the basis of income rather than wealth. The
tend to substantiate the claim that on the whole, France
stock of mortgage loans is therefore relatively insensitive
has a healthy property market.
to declining property values and rising interest rates, which
lessens the negative consequences of any downtrend in
In any case, the slide in real estate prices is likely to
the French real estate market for fi nancial institutions.
taper off in 2009 under the infl uence of several factors.
Interest rates on home loans with terms of over one year Secondly, because the wealth effect is less signifi cant
have been heading downward since January. More to
in France, a decrease in real estate prices has only a li-
the point, government policy in the past several months
mited impact on consumer spending. INSEE, France’s
has provided valuable support. The “Scellier” program
institute for statistics and economic studies, has calcu-
encourages rental property investment and renders it
lated that an increase of 1 € in the aggregate wealth of
more lucrative. Likewise, the tax deductibility of interest
French households eventually translates into an increase
payments on mortgage loans made possible by the Act
in consumer spending of 0.4 cents. The wealth effect is
of August 21, 2007 should lessen the current adjustment
much more substantial in the United Kingdom (3.6 pence
to real estate prices in 2009.
per pound) and above all in the United States (5.8 cents
(2)
per dollar)
. Seen in that light, the €347 billion decrease
in the net wealth of French households observed in 2008,
Household savings rate
25
equal to - 3.5%, should eventually reduce their consump-
in %
tion by approximately €1.4 billion, which represents only
20
0.1 % of the total. In the United States, in contrast, whe-
re the wealth effect plays a greater role and household
15
wealth fell much more sharply in 2008 (- $10,880 billion,
i.e. - 18.1 %), the long-range outcome would be a $631
10
billion decrease in consumer spending, an amount equal to
6.2 % of aggregate US household spending. French consu-
5
mers therefore entered the crisis on a comparatively sound
fi nancial footing that has enabled them to go on spending
0
even in troubled economic times. In 2007, French house-
1995 2007 2008 1995 2007 2008 1995 2007 2008 1995 2007 2008 1995 2007 2008
hold debt stood at 94 % of gross disposable income, com-
ItalySpainUKUSFrance
pared to 100 % in Germany, 128 % in the United States,
sources : National Accounts
135 % in Spain and 150 % in the United Kingdom. In ad-
dition, the household savings rate has remained high and
Real estate purchasing power
stable throughout the most recent period—in the vicinity
(relative to long-term average)
of 16%—whereas consumer spending in the United Kin-
100
80
gdom and the United States was partially driven by a subs-
%
60
tantial decline in savings during the 2000s. What is more,
40
20
due to their preference for low-risk fi nancial assets, French
0
households have been less exposed in comparative terms
-20
to the stock market downtrend since 2007.
-40
-60
-80
Last up date : Q2008 Thirdly, France has so far experienced only a moderate
-100
1990199219941996199820002002200420062008
UK (fixed-rate 30-year; no premium over interest rates)
Spain (fixed-rate 25-year; no premium over interest rates)
US (variable average term, variable premium)
(2)
France (15-year fixed term prior to 1999, then longer depending on average term of new loans)
Antonin Aviat, Jean-Charles Bricongne, Pierre-Alain Pionnier, « Riches-
se patrimoniale et consommation : un lien ténu en France, fort aux Etats-
sources : Datastream, OFHEO (US)
Unis », Note de conjoncture de l’Insee, décember 2007.
4 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
The shock to the financial industry was also milder in The unprecedented correction in world trade has chiefl y affec-
France ted export-driven economies
To begin with, the French regulatory system has clearly From September 2008 to February 2009, the volume
helped to limit risk-taking by French banks and thereby of world trade fell by nearly 20 %, that is, at a faster
(4)
made them less vulnerable to economic downturns. pace than following the 1929 stock market crash
. This
(3)
According to the IMF,
contraction has been particularly hard on countries that
the fact that total losses and
have heavily depended in recent years on exports to fuel
write-downs of French banks were below those in
growth. This is particularly true of Germany and, to a
France’s peer countries can in part be attributed to
lesser extent, Japan. In the period from 2000 to 2007,
the “relatively conservative lending practices” pursued
foreign trade accounted for close to 75 % of Germany’s
by those banks and to “the consistent coverage of all
economic growth (and 20 % of Japan’s)—in other words,
lending institutions” by a single supervisory body, the
exports grew much faster than imports. Both countries
Commission Bancaire (Banking Commission). A further
possess a comparatively large manufacturing base, which
indication of the greater resilience of France’s banks is
explains their sensitivity to global demand.
the trend in spreads on credit default swaps (CDSs), used
by investors as protection against default or bankruptcy
by reference entities. The gap between CDS spreads on
During industrial recessions, such a focus becomes a lia-
French banks and on banks in the other major European
bility. Owing to the weight of manufacturing in the Ger-
countries widened substantially between June 2008 and
man economy, and particularly to the tendency of German
May 2009.
industry to specialise in intermediate and capital goods,
exports have gone into free-fall—against a background of
plummeting investment and massive destocking. Germa-
5-year CDS spreads on banks by country
ny has also suffered from the plunge in automobile sales,
00
bps
which are traditionally the fi rst to decline in a downturn,
50
00
and which were further affected by tighter lending terms.
Switzerland
50
UK
Finally, given that imports to Germany tend to be less sen-
France
00
sitive to the business cycle, the country’s balance of trade
Spain
50
Italy
has taken a sharp turn for the worse.
Belgium
00
Germany
50
Value added in manufacturing
00
50
of %
GDP
00
35%
50
0
30%
june-07sept-07dec-07march-08june-08sept-08dec-08march-09june-09
25%
sources : Datastream, DGTPE calculations
20%
15%
NB :
the banks sampled here are HSBC, Barclays, RBS, Lloyds (UK); UBS
(Switzerland); BNP Paribas, Société Générale, Crédit Agricole (France);
10%
Deutsche Bank (Germany); Intesa SanPaolo and UniCredit (Italy); BBVA
5%
(Spain); Dexia and Fortis (Belgium). In calculating each national mean, the
0%
CDS spread is weighted by the bank’s market capitalisation at 1 January
USJapanGermanyItalySpainFrance
2008.
source : OECD (2007), except for Spain (2006)
The situation in France is somewhat different. Manufactu-
Furthermore, France’s fi nancial industry has remained re-
ring, while important, represents a smaller share of natio-
latively small throughout the 2000s. In 2006, the last year
nal output than in Germany and is more oriented toward
for which comparative international data is available, the
the domestic market. That explains why foreign trade
valued added by the fi nancial sector was equal to approxi-
made a negative contribution to French growth from 2000
mately 5 % of GDP in France, versus nearly 8 % in the Uni-
to 2007 ; but it also explains why France has had less
ted States and the United Kingdom. The gradual reversion
trouble weathering the slump in world trade. The overall
of asset values to their long-term mean, tougher lending
impression is that France’s growth model cushions the
regulations and higher capital requirements are already
country against fl uctuations in the global economy (fl uc-
producing fi nancial industry shrinkage, whose impact on
tuations that are closely linked to industrial cycles), whe-
employment and business activity will obviously be greater
reas the German model tends to amplify them.
in countries with large fi nancial sectors.
(3)
International Monetary Fund, France—2009 Article IV Consultation
(4)
Mission Concluding Statement, 16 June 2009. Available on the IMF
Barry Eichengreen and Kevin H. O’Rourke, “A tale of two depres-
website.
sions”, VoxEU.org, 1 September 2009.
5 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
The economic literature bears out this assumption. Accor-
This well-known structural difference between the French
ding to the European Commission, France ranks among the
and German economies is real enough, but its signifi cance
countries in which automatic stabilisers have the greatest
should not be overstated. The effect of a 1-point increase
countercyclical impact, irrespective of the specifi c reasons
in US GDP is to add 0.4 % to Germany’s GDP and 0.3 %
for the shortfall in growth. The effectiveness of automatic
to France’s.
stabilisers thus shows a positive correlation with the size
of public administration, and particularly with the share of
tax revenue in GDP.
The weight of the public sector in Fran-
ce has helped absorb the initial shock
Impact of automatic stabilisers on the business cycle
The considerable weight of public administration in the
French economy heightens the stabilising function of go-
France
Germany Spain UK Italy
vernment spending. With the onset of a recession, social
Effectiveness of automatic stabilisers against shocks to… (in %)
welfare expenditures—chiefl y unemployment compensa-
cons. spending
tion—are increased to offset the decrease in income ear-
23
18 18 18 20
ned by previously employed workers, while tax revenue
investment
9 10 13 9 11
automatically shrinks, since it is partially determined by the
exports 13
10 11 8 11
level of economic activity. The term automatic stabilisers is
productivity
9 10 13 11 7
now used to account for the way in which these two pro-
cesses combine to support economic activity and cushion
source : European Commission estimates based on the QUEST model, 2001
the initial impact of a recession.
Interpretation : i
n Germany, automatic stabilisers would absorb 18 %
The comparatively greater effect of automatic stabilisers in
of a shock to consumer spending which, all other things being equal, would
France probably has to do with the high rate of taxes and
reduce GDP by one point (estimate for the period from 1991 to 2000).
social security contributions and to the country’s generous
unemployment benefi ts. In 2007, tax revenue was equal to
43.3 % of GDP in France, compared to an average of only
Recent IMF estimates point in the same direction. In each
40.4 % in the euro area, 39.5 % in Germany and 36.3 %
year from 2008 to 2010, claims the Fund, automatic stabi-
in the United Kingdom. The only countries in the European
lisers should generate a fi scal stimulus equal on average
Union with a heavier tax burden were Belgium (44.0 %),
to 2.4 % of GDP in France, with comparable outcomes
Sweden (48.3 %) and Denmark (48.7 %).
in Italy (2.6 %) and the United Kingdom (2.5 %), but a
(5)
much lower percentage in the United States
(1.6 %) and
On the expenditure side, the benefi t replacement rate for
Germany (1.6 %). Considering that the latest shock has
job-seekers, that is, the percentage of a laid-off worker’s
proved less severe in France than elsewhere for reasons
previous wage covered by unemployment benefi ts, is also
outlined above, the IMF fi gures appear to corroborate the
comparatively high in France. Any rise in unemployment
assertion that France’s automatic stabilisers have greater
following a decline in business activity should therefore
power to absorb a shock of a given intensity.
lead to a comparatively greater increase in spending on
compensation in France, thereby putting a brake on the fall
In addition to this impact of automatic stabilisers, it is
in household income and helping to sustain the economy.
worth mentioning the stabilising effect of government
spending, which shows only limited change in response
Net initial replacement rate for job-seekers
to the business cycle. The main items here are social
90
in %
85
85
welfare benefi ts (e.g. retirement benefi ts and family allo-
80
wances) and compensation to public sector employees.
77
75
As long as government refrains from making cutbacks,
72
70
70
70
cash welfare benefi ts and public sector salaries continue
66
65
64
64
65
62
to grow at their long-term rate even through periods of
61
60
57
56
economic downturn, when earned income and property
55
53
55
income trend downward. These public spending items
50
50
50
make up a particularly large share of household income
43
45
in France; in 2007, they accounted for 49 % of gross dis-
40
UK US
Italy
posable income, compared to only 38 % in Germany. Mo-
Spain
France
Austria
Japan
Ireland
Finland
Canada
Sweden
Belgium
Australia
Denmark
Germany
Switzerland
Netherlands
Luxembourg
reover, some of those benefi ts were adjusted upward in
2009 to offset high infl ation in 2008, with the result that
source : OECD (2007)
the Government’s countercyclical boost to social welfare
NB :
benefi ts was amplifi ed.
ratio of net income out of work to net income in work. Summary
measure across various family situations and earnings levels for a 40-year-
old worker who has worked continuously since the age of 18 (single, mar-
ried, couple with two children, no children, earnings equal to 67 %, 100 %
(5)
IMF, Global Economic Policies and Prospects, Note for the G20 Sum-
mit held in London on March 13-14, 2009.
or 150 % of average earnings).
6 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
If we compare France to the other major European
It follows that the combination of lower tax and social se-
economies, the impact of its fi scal measures on
curity contributions and undiminished social welfare spen-
growth in 2009 would put the country in the medium-
ding should lead to higher household purchasing power
high range. This view is shared by the IMF, who stated
in 2009, even though aggregate earned income should
last June that “The [French] fi scal response to support
decrease as a consequence of rising unemployment.
aggregate demand in 2009-2010 has been appropria-
te” and observed with satisfaction that “the suitably
sized package of stimulus measures has been front-
Contributors to household purchasing power
loaded and well-diversifi ed” in 2009.
6%
forecast
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
20002001200220032004200520062007200820092010
Earned income Cash transfers, net Property income, net
PCE deflator Purchasing power gains
sources : Insee, DGTPE
France’s Recovery Plan focuses more
on 2009 than similar plans in other coun-
tries, and its average knock-on effect is
comparatively greater
The economic policies initiated by the Government to sup-
port investment, cash fl ow for businesses and purchasing
power for lower-income families have likewise enhanced
France’s economic stability. In addition to benefi ting from
the Recovery Plan provisions unveiled in December 2008
and February 2009, economic activity has received a ma-
jor boost as the measures provided for in the Work, Em-
ployment and Purchasing Power Act (TEPA) have begun to
produce results and the new earned income supplement
(RSA) has come into force. The total quantity of income
injected into the economy amounts to approximately 45
billion €. in the 2009-2010 period.
As regards the total size of the French stimulus package,
the measures announced so far are roughly equal to 2.4 %
of GDP, a rate higher than in Italy (0.9 %) and the United
Kingdom (1.5 %), but lower than in Germany (3.6 %), Spain
(4.5 %) and the United States (5.5 %). This intermediate
status can best be explained by the scope of automatic
stabilisers in France, which provide powerful support to the
economy.
The decision to focus Recovery Plan spending on 2009 has
enabled France to achieve maximum effi ciency by provi-
ding a signifi cant countercyclical boost just when the busi-
ness climate is most depressed. In particular, the car scrap
rebate introduced at the start of 2009 has led to rapid reco-
very in the automobile industry, while measures to bolster
companies’ cash fl ow have partially offset the negative im-
pact of tougher lending terms. And with further measures
designed to support to purchasing power of lower-income
families and promote an accelerated public infrastructure
program, the knock-on effect to the economy as a whole
is considerable.
7 I FRANCE - Politique économique - October 2009 - MEIE/DGTPE
Conclusion
Another issue to be considered is the impact of the crisis
on the growth path of economies. The scope and speci-
fi cs of recovery are partially contingent on the capacity of
The comparatively balanced nature of French economic
(6)
any given economy for long-term growth
growth prior to the crisis, the importance of automatic sta-
. Accordingly,
bilisers and an appropriately focused Recovery Plan have
the widening gap since 2008 between France and its main
all played a part in enabling France to perform somewhat
partners might not go away entirely, and the French eco-
better than its main partners in the recent period. The
nomy could eventually come out slightly ahead. To give
country’s economic policies and automatic stabilisers have
two examples, France’s banking sector is in better shape
helped reduce volatility. In and of itself, lower output vola-
than its German counterpart, and the country’s demogra-
tility is good news for citizens in that it makes it easier for
phic trends put France on a more favourable footing than
them to estimate their future earnings.
Germany. The evidence in both cases points toward higher
medium-term growth in France.
A number of the factors that account for the lesser severity
of recession in France, and which can be traced back to the
In conclusion, the greater resilience of the French economy
more balance nature of growth in the country before the
to the crisis in the past several months does not eliminate
crisis, should continue to work in France’s favour. Various
the need for structural reforms to increase France’s me-
models from abroad were predicated on either large-scale
dium-range growth potential. The goal of those reforms
household debt (e.g. the United Kingdom, the United Sta-
should be to raise the rate of employment and workforce
tes) or a heightened focus on exports (e.g. Germany). That
participation, support business investment and increase
suggests that once the crisis is behind us, those countries
productivity, in particular through greater competition in
might not be able to replicate the growth rates they achie-
product and service markets, which is bound to be benefi -
ved in the 2000s, since the need to scale back household
cial to consumers.
debt or shift production to serve the domestic market
would maintain potential growth below the levels attained
in the preceding period. Given that those extremes have
been largely or entirely absent from the French economy,
France would be spared the necessary adjustments and
(6)
Cerra, Valerie and Sweta Chaman Saxena (2007): “Growth dynamics:
could look forward to a recovery at least as vigorous as in
the myth of economic recovery”, BIS Working Papers No. 226, Basel,
Bank for International Settlements.
other countries.
FRANCE - Politique économique is prepared under the authority of the Ministry of the Economy, Industry
and Employment. This paper includes the analyses presented in the Economic, Social and Financial Report associated
with 2010 Finance Bill.
Ministère de l’Economie, de l’Industrie et de l’Emploi, Direction générale du Trésor et de la Politique économique
Télédoc 647, 139, rue de Bercy - 75575 Paris CEDEX 12 - Téléphone : 01 44 87 18 51 - Télécopie : 01 53 18 97 74
ISSN en cours
ليست هناك تعليقات:
إرسال تعليق