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 volu me t er ms) quarter-on-quarter, % GDP (in volume t erms) 6 y-o-y, % 1.5 1 4 0.5 0 2 -0.5 -1 -1.5 Euro area France 0 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 : I n dust r ia l pr oduct io n in dex 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? 2005=100 110 100 90 80 Manufacturing Manufacture of food products and beverages Electrical and electronic equipment; machine equipment Manufacture of transport equipment Other manufacturing 70 2005 2006 2007 2008 2009 2010 © Coe-Rexecode -4 2 – What can we learn from business surveys? Fr an ce I n dust r ia l Con f id en ce I n dic at or E u ro p e a n Co mmisio n 15 P MIin d e x-Re u te rs Balance in % 65 60 0 55 50 -15 45 40 -30 35 -45 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) Fr an ce Ser vic e Con f id en ce I n dic at or Eu ro p e a n Co mmisio n 30 PMIin d e x-Re u te rs Balance in % 70 65 15 60 0 55 50 -15 45 -30 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) Fr an ce Con st r uct io n Con f id en ce I n dic at or Eu ro p e a n Co mmisio n 40 Balance in % 20 0 -20 -40 -60 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 Underly in g 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 Fr an ce: mon t hly busin ess sur vey ( goods- pr oducin g in dust r ie s) Fin is hed- goods in ven t or y le vel 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. Fr an ce Households real disposable C o n su mp tio n in ma n u fa c tu re d g o o d s % 8 23 Chained bilion 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 Fr an ce Capacity Utiliz ation Manufa cturing 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 perfo rm ance Pri c e competi ti v eness 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. Fr an ce GFCF Genera l government % 12 y-o-y, % quarter-on-quarter, % 9 6 3 0 -3 -6 -9 -12 2002 2003 2004 2005 2006 2007 2008 2009 2010 © Coe-Rexecode - 13 4 – What prospect for the labour market? Fr an ce E mp lo yme n t-p riv a te se c to r 200 U n e mp lo yme n t Quarterly changes - thousands of persons 12 % 3.5 11 3.2 10 2.9 9 2.6 100 0 -100 2.3 8 Unemployment rate (LHS) Unemployed (thousands of persons) (RHS) -200 2.0 7 91 93 95 97 99 01 03 05 07 09 11 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 are a 20 8q1=10 106 20 8q1=10 102 104 100 102 100 98 G DP Employment Productivity 98 94 96 G DP Employment Productivity 96 1 2008 2 3 4 1 2009 2 3 4 1 2010 94 1 2008 2 3 4 Germ any 102 1 2009 2 3 4 1 2010 2 3 4 1 2010 Fra nce 20 8q1=10 102 100 20 8q1=10 100 98 98 96 G DP Employment Productivity 94 92 1 2008 2 G DP Employment Productivity 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 ! Fr an ce GDP ( in volu me t er ms) 1700 Chained billions of euros at annual rate 1650 1600 1550 1500 1450 2002 2003 2004 2005 2006 2007 2008 2009 2010 © Coe-Rexecode - 19