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France - Economy

The French economy grew 1.5 percent in 2019, putting it among the best performers in Europe, but the downturn in 2020 was its worst recession since World War II. The French economy plunged into a deep recession in 2020 as the coronavirus pandemic slashed total output by 8.3 percent, official figures showed 29 January 2021. The figures were however slightly better than the 9.0 percent shrinkage initially indicated by the official statistics office INSEE as France suffered less in the latter part of the year from a second coronavirus lockdown.

Emmanuel won office in 2017 with an overarching economic objective: to "liberate work and the spirit of enterprise", as his platform pledged, in order to encourage growth, reduce unemployment and boost French consumers' purchasing power. Macron – a former investment banker who had served as economy minister under Socialist president François Hollande – promised deep economic reforms, to effect concrete change within France and to transform foreign investors' perceptions of the country's economy.

For businesses, Macron dropped the tax rate on firms from 33.3 percent to 25 percent, slashed the cost of labour by transforming a €20 billion a year tax credit into a permanent reduction on social security contributions for employers. He also had the French labour code modified to help firms by facilitating layoffs. For individuals, Macron did away with the wealth tax (the impôt sur la fortune, or ISF) and created a fixed one-time levy on capital gains to stimulate investment in companies and the real economy in trickle-down fashion.

Five years after Macron's election, the raw numbers are relatively flattering. GDP growth, for one, reached 7 percent in 2021, according to an initial January estimate by the French statistics office, Insee. That exceptionally high figure represents the rebound the French economy enjoyed after a historic dip (- 8 percent) during the pandemic-inflicted recession of 2020, although France's subsequent bounce was one of the most robust of any country in the eurozone. France's unemployment rate, meanwhile, fell to 7.4 percent in the fourth quarter of 2021, a figure not seen since 2008.

A transport stoppage that caused daily travel misery for millions of people in France entered its 23rd day on 27 December 2019, surpassing the duration of a 1995 strike whose success unions are hoping to repeat. With no end in sight, train and metro transport was again severely disrupted in Paris and on regional lines, as railway workers stayed off the job to protest the government's plan to merge 42 existing pension schemes into a single, points-based system. The overhaul would see workers in certain sectors – including the railways – lose early retirement benefits, while millions more faced benefit cuts. With some 42 percent of train drivers on strike, the SNCF rail company said just over half of its high-speed TGV trains would be running Friday, 20 percent of suburban trains in the larger Paris region, four out of 10 regional trains and a quarter of inter-city connections. In Paris, only two of 16 metro lines – the only driverless ones – were running as usual, four were closed, and ten provided a much reduced service.

Indian Union Finance Minister Arun Jaitley on 30 August 2018 said India was expected to surpass Britain next year to become world’s fifth largest economy. “This year, in terms of size, we have overtaken France. Next year we are likely to overtake Britain. Therefore, we will be the fifth largest [economy],” he said in New Delhi. India became the globe's sixth-biggest economy in 2017, pushing France into seventh place, according to figures released by the World Bank in July 2018. India's gross domestic product (GDP) was $2.597 trillion at the end of 2017, against $2.582 trillion for France. The United States is the world's top economy, followed by China, Japan and Germany. Britain was the world's fifth-biggest economy with a GDP of $2.622 trillion in 2018.

On 05 December 2019 over 1 million French took the streets of Paris to reject the policies of President Emmanuel Macron. France protested against a pension reform through a nationwide general strike that kept public transport paralyzed for days. This was the result of the joint action of the workers of the national state-owned railway company SNCF and the workers of the public transport company in Paris RATP, who announced that their strike would continue until 09 December 2019. On the first day of the national strike, the police violently attacked the demonstrators and arrested more than one hundred people. French citizens continued to denounce that pension reform's real purpose is to diminish the rights acquired by workers. If Macron's proposal were to be implemented, retirees' pension could be reduced by hundreds of euros and the retirement minimum age would increase concerning the current requirement (62 years). Despite the growing social unrest over pension reform, Macron said emphatically that his plan would come into effect and recommended that the French "work harder." For his part, Prime Minister Edouard Philippe confirmed that plans to reform the pension system will continue but that the change would be gradual and “not brutal”.

France is among countries which seem to have taken to heart the IMF's advice to "repair the roof while the sun is shining." As growth has rebounded, the government has shifted reforms into a higher gear over the last year. It has enacted a number of comprehensive reforms, from taxation, education, and the labor markets, to a reform of the railway system.

Near-term growth prospects remain favorable, although less buoyant than in 2017. Real GDP growth is projected to reach 1.8 percent this year and 1.7 percent in 2019, supported by robust investment and solid consumption. While the contribution of net exports turned slightly positive in 2017 and the current account deficit shrunk, France’s external position is assessed to be moderately weaker than implied by economic fundamentals and desirable policy settings. Job growth has picked up and the unemployment rate has declined to around 9 percent. Inflation is expected to reach 1.8 percent this year, spurred by energy prices and a gradual increase in core inflation. The fiscal deficit fell to 2.6 percent in 2017, below the EDP limit of 3 percent for the first time in a decade, largely driven by the improved macroeconomic outcomes.

The unemployment rate in France reported a decrease of 0.3 percentage points to 9.6 percent during the second quarter of 2016 compared to a quarter earlier, the lowest level since 2012, the national statistical authority Insee reported 18 August 2016. With overseas departments taken into account, the quarterly jobless rate stood at 9.9 percent down from 10.2 percent in the first three months of the year. According to Insee, 2.8 million people were reported jobless in mainland France over the period. On yearly basis, unemployment fell by 0.5 percent. "The unemployment rate decreased across all age groups, particularly among youths," the statistics agency said. From April-June 2016, the jobless rate of young people aged from 15 to 24 was at 23.7 percent, down by 0.4 percent with 643,000 seeking for a job.

The recovery was solidifying in 2016. The economy was projected to expand by 1.5 percent in 2016, primarily driven by strong consumer spending. There were also signs of a cyclical recovery in investment, and the slump in residential construction appeared to be bottoming out. By contrast, net exports were declining as demand from trading partners had slowed. Private sector job creation remained lackluster and the unemployment rate hovered around 10 percent. Structural fiscal adjustment is slowing to near zero this year and the public debt ratio was still rising.

Despite the cyclical recovery, structural rigidities and slower productivity growth across advanced countries weigh on medium-term prospects. Apart from regulations in the services sector and the high tax burden, a key obstacle to growth remained the labor market, where structural unemployment was projected to remain high in the absence of additional reforms. In an environment with modest medium-term growth prospects at home and in the euro area, France thus faces two central policy challenges: to support a more rapid creation of new private sector jobs and to ensure the sustainability of public finances via more efficient government spending growth.

The government continued in 2016 to advance important reforms to help create the conditions for improved economic performance. These include most notably thereduction in taxes under thePacte de Responsabilité et de Solidarité and the Crédit d'Impôt pour la Compétitivité et l'Emploi (CICE) and the competition-enhancing structural reforms under the Macron law. Building on earlier labor market reforms including the Rebsamen law, the El Khomri law would be another step forward, increasing the scope for company-level labor agreements and reducing judicial uncertainty. As for budget policies, in 2016 there were ongoing efforts to contain spending growth at all levels of government while easing taxes.

With a GDP of $2.865 trillion, France is the world's sixth-largest economy. It has substantial agricultural resources, a large industrial base, and a highly skilled work force. A dynamic services sector accounts for an increasingly large share of economic activity and is responsible for nearly all job creation in recent years. Real GDP increased 0.7% in 2008. According to Organization for Economic Cooperation and Development (OECD) projections, 2009 GDP will decline by 3.3% (revised March 2009 forecast).

Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate has been a top priority. The unemployment rate in metropolitan France increased to 7.8% in the fourth quarter of 2008 up from 7.5% in fourth quarter of 2007.. France joined 10 other European Union countries in adopting the euro as its currency in January 1999. Since then, monetary policy has been set by the European Central Bank in Frankfurt. On January 1, 2002, France, along with the other countries of the euro zone, dropped its national currency in favor of euro bills and coins.

Despite significant reform and privatization over the past 15 years, the government continues to control a large share of economic activity: Government spending, at 52.7% in 2008, is among the highest in the G-7. The government continues to own shares in corporations in a range of sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications.

In 2008, in a move to advance France's competitiveness, the National Assembly passed four bills introduced by the French government to modernize the economy and improve the labor market. In October 2007, under President Nicolas Sarkozy's impetus, overtime work beyond the 35-hour work week was exempted from income taxes and payroll taxes, a move to encourage work and to increase work time. Membership in France's labor unions accounts for approximately 5% of the private sector work force and is concentrated in the manufacturing, transportation, and heavy industry sectors. Most unions are affiliated with one of the competing national federations, the largest and most powerful of which are the communist-dominated General Labor Confederation (CGT), the Workers' Force (FO), and the French Democratic Confederation of Labor (CFDT).

France has been very successful in developing dynamic telecommunications, aerospace, and weapons sectors. With virtually no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 80% of the country's electricity production.

France is the second-largest trading nation in Western Europe (after Germany). France ran a $82 billion trade deficit in goods (Customs basis)in 2008. Total trade in goods for 2008 amounted to $1.294 trillion, over 45% of GDP, 75% of which was with EU-26 countries. In 2008, U.S.-France trade in goods and services totaled an $107 billion. U.S. industrial chemicals, aircraft and engines, electronic components, telecommunications, computer software, computers and peripherals, analytical and scientific instrumentation, medical instruments and supplies, broadcasting equipment, and programming and franchising are particularly attractive to French importers. Total French trade of goods and services was $1.594 trillion in 2008. Principal French exports to the United States are aircraft and engines, beverages, electrical equipment, chemicals, cosmetics, and luxury products. France is the eighth-largest trading partner of the United States.

Since the 1950, French agriculture has had to face new challenges. Before World War II, farms were small and agriculture represented 35% of the French active population and the priority was self-sufficiency. Today, thanks to the common agricultural policy and the creation of a new economic market, agriculture has undergone major changes. In 2010 in metropolitan France, 970,000 people held regular employment on farms, which represents 3.3% of the French jobs. The average of the French agricultural income before taxes in 2012 increased by 9% compared to 2011. The average agricultural income has increased for three years in a row to reach its maximum amount ever this year: $49,215.