FRANCE: A Discontented Part of Society Forced the Government to Offer Countermeasures

In 2018, GDP growth (1.5%) significantly slowed compared to 2017 (2.3%). In Q4, households’ consumption decreased by 0.3% q/q also because of the “Gilets jaunes” crisis in November-December 2018 with marked consequences on mass retail and tourism. The government reacted with the introduction of fiscal and social security measures (EUR 10 billion) to stimulate the households’ purchasing power (exp. ’19: +2,7%) and thus sustain their consumption despite a moderated pace of job creation and a slow decrease of the unemployment rate (exp. ’19: 8.5%).

Cancellations of tax increases and cuts to taxes and contributions are aimed at workers and retirees with modest and average incomes. Considering the tax cuts already scheduled (council tax, transformation of CICE tax credit), this substantial support plan for consumption and economic activity should also significantly degrade the planned public deficit (2.8%). President Macron has stated his intention of continuing to implement his government, pensions and unemployment insurance reforms in the coming months. The pursuit of the reforms and the advent of social peace will partly depend on the results of the current national consultation-debate especially focusing on the ecological transition, taxation and public services.

In the 4Q 2018, industrial production declined of 1.0% q/q and the composite Business Climate PMI deteriorated sharply from 54,2 in November to 49.3 points in December, under the future economic growth threshold (50). Investment by nonfinancial companies is expected to continue growing by 3.3% in 2019 (’18: +3.9%) for the sixth consecutive year but with a slowdown because of the deteriorating economic environment. The net contribution to growth from foreign trade was positive in 2018 (0.6 of a point). Investment spending could drive imports again in 2019 whereas exports are likely to decrease because of the slowdown in global demand.

April 2019