As the election approaches I thought it was time for us to take a look at the economic situation in France. We can start with the view of the International Monetary Fund and its economic outlook yesterday will have raised a wry smile in the French state.
As a consequence, euro area GDP growth
in 2022 is revised down to 2.8 percent (1.1 percentage points lower than in January), with the biggest
downgrades in economies such as Germany and Italy
with relatively large manufacturing sectors and greater
dependence on energy imports from Russia. Across the
euro area, the hit to activity is partially offset by increased
fiscal support.
So a reduction in Euro area growth which will have impacts for France but the wry smile will come from Germany being singled out for underperformance. Actually that is just for the size of downgrade as Germany is expected to outperform France over the next two years. One detail you may not have read is that the UK is expected to grow faster than France as well as the media has rushed to only show the 2023 numbers for the UK and ignored this year.
As ever I counsel caution about such forecasts from the IMF as for example I think that the Euro area is not growing at all right now so there is even more of an element of unreality about this.
What about post pandemic?
Here are the latest economic figures.
In Q4 2021, the rise in gross domestic product (GDP) continued (+0.7%), and GDP exceeded its pre-crisis level by 0.9% (Q4 2019)
So in fact for all the name calling and arguing the UK and French picture has ended up being within the margin of error for these numbers, or effectively the same. A different pattern but for the moment a similar outcome.
Actually there was another echo if the UK from the trade figures.
Foreign trade, still in a catch-up phase, is growing faster than domestic demand. The rise was more marked in imports (+3.9% after +1.0%) than in exports (+3.1% after +1.7%). Thus, the contribution of foreign trade to GDP growth is slightly negative this quarter: –0.3 points.
A problem forthe trade figures in 2022 will result from this.
France imports all its needs of coal and gas, as the domestic production of coal ended in 2004 with the closure of the La Houve coal mine. Only 1% of oil supply was produced
domestically in 2020. ( IEA)
In total France imported some 46% of its energy needs in 2019.
France produced 54% of TES in 2019 (Figure 2.4), with domestic energy production consisting mainly of nuclear energy. ( IEA)
Also where it sources its energy from is a source of problems.
Today, France imports all its coal needs, primarily from
Australia and the Russian Federation. Natural gas is entirely imported, mainly from Norway and Russia. Oil is imported from Saudi Arabia, Russia, Kazakhstan, and other countries with a smaller share.
In terms of trade this already is a lot more expensive and this will continue through this year.
Production
The official figures set the scene here which is one of an ongoing depression.
In February 2022, production fell back in manufacturing industry (−0.5% after +2.2%) as in industry as a whole (−0.9% after +1.8%). Compared to February 2020 (last month before the start of the first lockdown), production remains down in manufacturing industry (−4.5%) and in industry as a whole (−4.6%) .
As you can see both are nearly 5% below pre pandemic levels. Looking ahead I see the energy crisis depressing the numbers further. Whilst we are looking at agriculture below this from Le Monde highlights the issues at hand for many types of production.
The equation is untenable: agricultural input charges are “exploding”. Energy bills are soaring and, in one year, the price of fertilizers has doubled, and that of other materials necessary for production – sand (+ 10%), crop protection film (+ 55%), cardboard for packaging goods (+ 35%) – also leap dangerously. CO 2 , used as an input for greenhouse crops, also saw its price soar (+ 45%).
Another example from agriculture is below.
The market gardener, who is counting on an annual production of 6 million cucumbers, has already decided to cut back. “This year, we will make a million fewer pieces ,” he says. We will be forced to heat the greenhouses less, and therefore to produce less.
If we switch to the car sector the news this morning is grim too.
In March 2022, passenger car registrations in the European Union continued to decline (-20.5%), with 844,187 units sold. The ongoing supply chain disruptions, further exacerbated by Russia’s invasion of Ukraine, negatively affected car production. As a result, most countries in the region recorded double-digit drops in sales, including the four key markets: Spain (-30.2%), Italy (-29.7%), France (-19.5%) and Germany (-17.5%). ( ACEA )
As an aside I think that the Matkit PMIs have lost the plot and are actively misleading.
The seasonally adjusted S&P Global France Manufacturing
Purchasing Managers’ Index® (PMI®) dipped to 54.7 in March, from February’s six-month high of 57.2, signalling a slower improvement in operating conditions within the French goods-producing sector.
Public Debt
France has been borrowing a lot according to the official figures.
The public deficit for 2021 stands at €160.9 billion, i.e. 6.5% of gross domestic product (GDP), after 8.9% in 2020 and 3.1% in 2019.
Which means that the debt burden has risen.
General government debt within the meaning of Maastricht reaches 112.9% of GDP at the end of 2021. The Maastricht debt of general government, i.e. consolidated gross debt in nominal value, increased by €164.9 billion in 2021 to €2,813.1 billion.
On the other side of the coin the ECB had purchased some 527 billion Euros of French government debt as part of its main QE programme plus another 302 billion Euros under its PEPP one.
So up until now the ECB has effectively bought what France has issued. But the PEPP is now over and the existing QE plan is being reduced. That is why we have seen the 10 year yield rise to 1.33% after periods where it has even been negative. Care is needed as this is still a low level and the fact inflation is around will ease the issue for the state ( but not the worker and consumer).
Inflation
The consumer inflation numbers are in a type of pre election phoney war via the restrictions on domestic energy price rises.
The harmonized consumer price index (HICP) increased by 1.6% over one month, after +0.9% in February; over one year, it increased by 5.1%, after +4.2% the previous month.
France has not been able to stop all energy price rises though which is partly why inflation is beginning to catch up with its peers.
Energy prices accelerated (+9.0% after +3.6%) in the wake of those of petroleum products (+17.0% after +5.6%).
Producer prices have been on something of a charge.
In February 2022, producer prices in French industry slowed markedly over one month (+0.8%, after an unprecedented rise of 3.7% in January 2022). Prices intended for the French market decelerated (+1.1% after +4.7%) while those intended for external markets were virtually stable (–0.1% after +1.2%). Over one year, production prices in French industry rose by 20.1% (like the previous month).
Comment
There is much here that is rather familiar.Pretty much everywhere is looking at stagflation and maybe worse and France is copying that trend.Things could get much worse for the main buyers of Russian oil and gas Germany and Italy which could drag France lower. I doubt the main political candidates will be forecasting that under their stewardship though!
Let me finish with something that has been unexpected which is how unreliable the French nuclear power plants have been through this period. Oh how they must wish they had kept on top of things rather than succumbing to all the COP26 style propaganda. They could have been in relatively good shape.