Ludovic MARIN / POOL / AFP
Prosperity for everyone?
The French economy suffered a massive recession in 2020 due to the Covid-19 pandemic. However, Emmanuel Macron and Bruno Le Maire have defended their track record in competitiveness, growth, unemployment or purchasing power. Is this analysis consistent with reality?
Atlantico: We often hear that the French economy has been at its best for years, which indicators have actually improved? On the contrary, have certain indicators deteriorated?
Alexandre Delaigue: The first indicator is the growth level, which increased by 7% in 2021. This is extremely high, but this must be qualified by the exceptional circumstances we are experiencing. The French economy was put on hold during the Covid crisis, with GDP falling 8% in 2020, but mechanically if activity resumes there is a rebound effect. Still, leaving this way is already a good thing. We could have had prolonged paralysis.
For the coming years, it is difficult to make a serious forecast because of the war in Ukraine and all the disruption of global production chains in particular related to China’s zero-covid policy. If the ECB decides to fight inflation through costs, that will be decisive. As far as the growth path is concerned, we are well aware that since the 1980s, the growth of the French economy has slowed down every decade. In the last decade we were almost at 0. This is a situation that we see in almost all rich countries. Britain and Italy are doing even worse than us. We are average. But it’s hard to imagine what could improve the French government’s policies.
Employment and unemployment:
The second leading indicator is that of unemployment. In the last quarter of 2021 it stood at 7.4%. This is a pretty low level compared to what we may have had before. This is particularly noteworthy as the situation with the Covid crisis could have been particularly complex. And the government uses it to talk about success. This too must be nuanced. Much of the job creation corresponds to reforms that have pushed people to consider themselves self-employed rather than unemployed (+17% in 2021 compared to 2020). We don’t know if this reflects an improvement in the situation, or if it’s really permanent. You also have to look at the quality of the work. But we can also think that it is better than nothing. In addition, we are still creating jobs, especially for young people, that are subsidized jobs, both from an administrative and legal point of view, with contracts that are not classic CDDs or CDIs, or real subsidized jobs. There was also a very strong fall in costs, which continued and increased slightly. This entails costs for public finances. The improvement in employment did not come about miraculously. You would hope that this would eventually lead to stable jobs, but that has not happened in the past.
What if the biggest threat to the French economy came from Germany?
Public debt :
The Covid recession and whatever it takes has massively increased the national debt, now exceeding 2800 billion. This is one of the disturbing points. We have less and less leeway to respond to crises or make necessary adjustments. If it is necessary to increase the defense budget, for example because of the international context, that becomes difficult. Germany was able to do this because its government deficit is relatively reasonable and its accounts are in balance.
The subject of inflation and the rise in the consumer price index (+4.5% year on year) are a cause for concern, but are currently lower than in most comparable countries. There are a few factors that help to partially understand it, such as the relative control of gas prices. The fact that some of our energy does not come from fossil fuels has also had a protective effect compared to countries like Spain or Italy.
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Poverty rate :
Again, we are in exceptional circumstances. Regardless of the cost, it has made it possible to massively support the struggling French economy. It is therefore normal that there are consequences for poverty. But these are indirect policies that are not meant to be sustainable.
Our social system means that, after redistribution, we have inequalities that are low compared to other countries. Again, this is not due to the government itself. This is a long-term feature of the French economy.
Some economists worry that France is simply lagging behind its European neighbors and that it will face massive inflation in particular soon. Is it possible that the situation in France is precarious and possibly on the brink of an economic abyss?
If we look at the way France reacts to crises, we see two characteristics. It is usually affected a little later than other countries and to a lesser extent. This applies to both good and bad news. There is a form of inertia that explains this phenomenon. We can therefore expect later effects of inflation, but somewhat less strongly than in the other countries. If inflation persists in the eurozone, the ECB will slow down activity to reduce inflation, and that could be a cause for concern. You have to keep in mind that it’s been a long time since we really had inflation and we don’t really have institutional mechanisms against inflation. And this is going to play a disruptive role in the functioning of the economy. But it will have a positive effect on public finances. Since inflation is mainly the result of an energy crisis, some households will necessarily become poorer.
The French economy on the brink of the glorious 1930s? Small questions about Bruno Le Maire’s steely optimism