hps the french dis-connection
TRANSCRIPT
-
7/26/2019 HPS the French Dis-Connection
1/12
Hamilton Place Strategies provides communications, analysis, andadvocacy solutions at the intersection of business, government, andmedia.
The French Dis-Connection
A Primer On France's Post-Recession Economic Struggles
-
7/26/2019 HPS the French Dis-Connection
2/12
Executive Summary
1
Frances economy is in a post-recession rut with rising unemployment and weak GDP growth that has
stagnated for more than two years. High unemployment and lack of meaningful reforms has contributed toPresident Francois Hollande's low approval rating of 12 percentthe lowest rating of any French presidenton record.
This presentation provides background on the economic difficulties facing France, regulatory concerns, andpolicy proposals being considered by the French government. Key highlights are:
Despite weathering the crisis better than other countries, France's GDP growth has virtually stalled
in 2012 and 2013 and unemployment has increased to nearly 11 percent. In 2014, France's GDP isprojected to grow only 0.9 percent, while the OECD average is forecasted to be 2.2 percent.
Political support for President Hollande has evaporated with an approval rating of 12 percent.Despite initial efforts towards improving the business climate and the appointment of the more business-friendly Economic Minister Emmanuel Macron, France has yet to see real reform.
French businesses face a comparatively higher regulatory burden than other global economic
leaders. Tax rates and trade costs for French businesses also show that the cost of conducting business inFrance remains comparatively high. Although these alone do not account for its recent economic difficulties,improving the business climate could improve growth of domestic firms and attract FDI.
However, Frances difficulties are part of a pan-Eurozone slowdown. Since Maastricht, Frances GDPper capita has grown at similar rates as Germany but below that of the U.K. and the U.S. Overall, France'scontribution to global GDP is now four percent, down from five percent in 1992.
-
7/26/2019 HPS the French Dis-Connection
3/12
Despite Weathering The Crisis Better Than Some,France's Economy Has Shown Stagnant Growth
World Bank Data, GDP Growth (Annual %), 2004-2013
OECD, GDP Growth (Annual %), 2014 2
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
20082007 20132012201120102009Percent
GDP Growth (Annual %) DEUUSAGBRFRA
France is expected to
achieve only 0.9%GDP growth in 2014,compared with 1.9%projected for Germanyand 2.2% projectedfor the OECD average
GDP Growth In 2014
-
7/26/2019 HPS the French Dis-Connection
4/12
Unlike Others, The French Unemployment Rate HasContinued To Increase Since The Recession
OECD, Unemployment, Total (% Of Total Labor Force), Quarterly, 2009-2014;
OECD, Unemployment, Youth Total (% Total Labor Force 15-24), 2008, 2013 3
4
5
6
7
8
9
10
11
Percent
DEU
USA
GBR
FRA
201420132012201120102009
Unemployment (% Of Total Labor Force)
France and Germany'sunemployment gap isparticularly apparentwith regards to youth
unemployment, whichreached 23.9% inFrance in 2013, versus7.9% in Germany
Frances youth
unemployment wascomparatively higheven before therecession, at 18.6% inFrance and 10.6% inGermany in 2008
Youth Spotlight
-
7/26/2019 HPS the French Dis-Connection
5/12
However, France's Growth Is In Line With The BroaderEurozone, While Unemployment Is Still Relatively High
4
2726
16161413
121110988
77655
PRT
CYP
ESP
GRC
SVK
IRL
LVA
FRA
SVN
EST
BEL
FIN
NLD
LUX
MLT
DEU
AUT
2013 Eurozone Unemployment (% Total Labor Force)
4.1
2.42.0
0.90.80.50.40.30.2
-0.3-0.8-1.1-1.2-1.4-1.4
-3.9
-6.0
ESP
PRT
SVN
FIN
GRC
CYP
FRA
BEL
IRL
NLD
AUT
SVK
EST
DEU
LUX
LVA
MLT
2013 Eurozone GDP Growth (Annual %)
IMF World Economic Outlook Database, April 2014
GDP
Weak growth is a pan-Eurozone problem thathas slowed growth for allbut some of the groups
smallest economies.
Frances 2013 GDP
growth remains in linewith the largestEurozone economies.
Frances greater
economic challenge liesin its unemployment rate,which is more closelyaligned with the smaller,more volatile economiesof the Eurozone.
Unemployment
-
7/26/2019 HPS the French Dis-Connection
6/12
Longer-Term, Frances Share Of Global GDP HasDepreciated At A Slower Pace Than Germanys
World Bank Data, GDP Per Capita (Current $US), 1992-2013; GDP (Current $US), 1992-2013 5
+76%+78%
DEU
45
26
FRA
41
23
GBR
39
19
USA
53
25
+108%
+105%
GDP Per Capita, Current $US, Thousands,1992-2013
8
54
26
543
22
-24%
-41%-33%
DEUFRAGBRUSA
-14%20131992
Percent Share Of Global GDP, Current $US1992-2013
With longer-term GDP per capita growthin line with Germany, but below the U.S.and UK
France's contribution to global GDP has
depreciated less than Germany's but morethan UK and the U.S
-
7/26/2019 HPS the French Dis-Connection
7/12
Low Approval
This Year The Gov't Has Restructured Twice AndHollande's Approval Rating Has Fallen To New Lows
Hollande (IFOP); Mitterand (IFOP); Chirac (TNS-Sofres); Sarkozy (Viavoice) 6
Frances economic woes
have forced PresidentFrancois Hollande to
restructure thegovernment twice during2014.
President Hollandereplaced Frances
Economic Minister Arnaud
Montebourg with the morecenter-right EmmanuelMacron last August.
The French governmentannounced in August2014 that it would not
meet 2015 deficitreduction commitments tothe European Union.
S&P cut France's outlookfrom stable to negative inOctober 2014. S&P
maintains Frances AA/A-A1+ rating, which waslast downgraded inNovember 2013.
Weak OutlookGov't Restructuring
Hollande
(2014
)
Mitterand
(1991)
Chirac
(2005)
Sarkozy
(2011)
Lowest Approval Rating OfPresidency (Percent)
30
24
22
12
-
7/26/2019 HPS the French Dis-Connection
8/12
Frances Businesses Are Under Greater Regulatory
Pressure, Contributing To Slow Economic Growth
World Bank Data, Ease Of Doing Business Index, 2013 7
4
10
21
38
GBR
FRA
USA
DEU
Ease of Doing Business Index 2013 (1 =Most Business Friendly Regulations)
Frances Regulatory Environment
Burden On Businesses:When ranked on the World Banks Ease
of Doing Business Index, Frances
regulatory environment is ranked behind
other global competitors.
Ease Of Doing Business IndexThe Ease of Doing Business Indexmeasures the efficiency of an economys
regulation by examining 11 topic areas,including access to credit, ease of
starting a business, permitting, payingtaxes, protecting investors, and others.
-
7/26/2019 HPS the French Dis-Connection
9/12
The French Labor Tax Rate Is Higher Than Many OtherCountries' Total Tax Rate
World Bank Data, Labor Tax And Contributions (% Of Commercial Profits); Total Tax Rate (% Of Commercial Profits), 2013 8
52%
22%
10% 11%
13%
28%
36%
23%
DEU GBR
34%
46%
USA
49%
FRA
65%
Total Tax As A Percent Of Total CommercialProfits (%), 2013
Labor Tax
Other
Frances Tax Burden
In 2014, President Hollandeoffered businesses a30billion payroll tax cut in aneffort to provide relief from
Frances labor tax. The cut isexpected to reduce averagetotal wage bills for employersby 5.4%.
Frances government has
already provided businesseswith20 billion in tax breakssince the Great Recession.
-
7/26/2019 HPS the French Dis-Connection
10/12
French Businesses Face Higher Costs And Trade At ASlower Rate Than The U.S., U.K., And Germany
World Bank Data, Cost To Import, Export ($ Per Container), 2014; Time To Import, Export (Days), 2006, 2014 9
10
6
8
9DEU
GBR
USA
FRA905
GBR 1,005
USA 1,090
FRA 1,335
DEU
Cost To Export 2014 ($ PerContainer)
11
5
6
7
USAGBR
DEU
FRA
Time To Export 2014 (Days)
Time To Import 2014 (Days)
-
7/26/2019 HPS the French Dis-Connection
11/12
France Has Earned A Reputation For OverregulationAnd Hostility Towards Foreign Direct Investment
OECD, Foreign Direct Investment, 2004-2013 10
FDI To France, 2004-2013, In Billions Of US Dollars
5
25
3934
24
64
96
72
85
33
0
10
20
30
40
50
60
70
80
90
100
$Billions
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
-95%
Reputation For Overregulation
Layered Bureaucracy: Francesbureaucracy includes multiple stateand local governing bodies thatadd to the volume of regulation
Frances 49ers: Effects of
overregulation can be seen in theprevalence of companies with 49employees, a phenomenon thathas occurred as a result of theregulatory changes businessesmust make after reaching a size of50 employees
Culture Of Protectionism: Casessuch as Frances intervention in the
ultimately successful acquisition ofAlstom by GE have shown howFrances protectionism risks
reducing foreign investment
-
7/26/2019 HPS the French Dis-Connection
12/12
Economy Minister Emmanuel Macrons Prescription
For Frances Ailing Economy
11
Initiative Description
Responsibility Pact Payroll tax cut for businesses
Although not Economy Minister at the time,Macron played a heavy hand in enacting a
30 billion tax cut for businesses inexchange for hiring pledges
Sunday Trading,Industry SpecificDeregulation
Macrons first round of reforms seek to lift
restrictions on business operating hours onSundays, allow further competition inintercity bus transportation, and deregulateprofessions in the health and judiciarysectors
UnemploymentBenefits, 35 HourWork Week
Macron has said he would supportreexamining Frances 35-hour work weekand unemployment benefit system, bothstaples of Frances social welfare state
Despite rhetoric, Macron has yet to initiateaction on these topics
Macrons arrival has brought
with it little in the way of realpolicy change and more rhetoricon whats needed to turn around
Frances economy.
His strong language has servedprimarily thus far as a signal toGermany and EU leaders thatreal reform is on the way.
That being said, there is morepolitical opportunity for reformsthan in years past. Macrons
challenge lies in balancingFrench ideals of a strong welfarestate while working to improveFrances business climate.
For more details the OECDpublished a report here.
Our Take
http://www.oecd.org/gov/regulatory-policy/betterregulationineuropefrance.htmhttp://www.oecd.org/gov/regulatory-policy/betterregulationineuropefrance.htm