It has been a summer where France has been in the news most obviously with the Paris Olympics. This week it has been added to via the parachuting in of former Brexit negotiator Michel Barnier as Prime Minister. But as ever my concern is with the economy and we can open with the economic growth figures.
In the second quarter of 2024, the gross domestic product (GDP) in volume will increase by 0.2%. (Insee)
Those who look at it in a trend is your friend way will note that this means quarterly growth has gone 0.4%,0.3% and then 0.2%. This is reinforced by the fact that domestic demand is struggling and investment falling.
Overall, the contribution of final domestic demand excluding stocks to GDP growth is zero this quarter, as in the previous quarter……… Gross fixed capital formation (GFCF) decreases again in the second quarter of 2024 (-0.4% after -0.5%), mainly due to the decline in GFCF in construction (-0.9% after -1.0%) and in capital goods (-2.7% after -1.0%)
The growth in 2024 has essentially been from net trade.
Overall, the contribution of foreign trade to the evolution of GDP is positive in the second quarter of 2024 (+0.1 point after +0.3 point).
That may be a little ominous considering the direction of travel for the Euro area economy and China in particular. But for this quarter we are expecting a decent boost from the Paris Olympics.
“This is no sustainable level. The French service sector saw a nearly five-point rise in its Business Activity PMI in August, reaching its highest level since May 2022. HCOB Economics thinks this is due to the Olympic Games, which was partially noted by some companies that reported greater new export business. This one-time boost is not evident in other PMI subindices, as only business activity and new orders showed significant improvement.”
Although the official sentiment series was not so clear-cut.
In August 2024, the business climate in France rebounded compared to July. At 97, the indicator that synthesizes it, calculated from the responses of business leaders in the main commercial sectors of activity, gained three points after losing five the previous month and is approaching its long-term average (100). All the sectors of activity surveyed this month contributed to this rebound.
As you can see according to it there was a rally but not enough to undo the July decline.
Manufacturing
This is the other side of the French economic coin at the moment and we can start with this morning’s official release.
In July 2024, production falls back over one month in the manufacturing industry (-0.9% after +0.9% in June 2024) as in industry as a whole (-0.5% after +0.8%).
The June figures look a little out of line but like we often see with pharmaceuticals in the UK it looks as though transport production does not run to a monthly cycle.
In July 2024*, production fell sharply in the manufacture of transport equipment (-4.9% after +3.1%): in detail, it fell in the automobile industry (-4.6% after +2.8%) and in the manufacture of other transport equipment (-5.1% after +3.3%.
But as we look further the position has been both recessionary and indeed depressionary.
Production in the last three months (May to July 2024) is lower than that of the same three months of the previous year in the manufacturing industry (-3.0%), as in the industry as a whole (-2.3%).
If we look at the Manufacturing PMI then sadly that looks to persist.
“The state of the French manufacturing sector is deteriorating. What seemed like a recovery of the industrial sector at the start of 2024 turned out to be just a brief uptick. The slowdown of the manufacturing sector continued in August. Output declined for the twenty-seventh month running, as too did new orders overall.”
Indeed the outlook turned even bleaker.
“French manufacturers are bracing for tough times ahead. For the first time since the beginning of the year, the index for future output expectations dropped below the neutral threshold. “
Energy
This is a big factor in the manufacturing problems and this week there was some good news but with a bitter twist.
Thanks to the good industrial performance of the French nuclear fleet since the beginning of the year, EDF is estimating the range of nuclear production in France for 2024 upwards. Initially between 315 and 345 TWh, the latter is now estimated at between 340 and 360 TWh.
An improvement is clearly welcome but I noted people replying on social media pointing out output used to be above 400 TWh and at times 430. In a way the same issue played out here.
PARIS, Sept 5 (Reuters) – French state-owned energy firm EDF said on Thursday its teams were making technical checks after the new Flamanville 3 nuclear reactor stopped automatically only a day after the unit, hit by 12 years of delays and setbacks, entered production.
Good news but also a reminder of what might have been. If France had really pressed forwards with its nuclear power then it may well have been in a position to avoid at least some of this in energy intensive energy.
For these sectors, production in the last three months (May to July 2024) remains significantly lower than in the second quarter of 2021 (the last quarter before energy prices increased sharply), particularly in the steel industry (-29.5%), the manufacture of basic chemicals (-17.5%), the manufacture of glass and glassware (-17.3%) and the manufacture of pulp, paper and cardboard (-10.2%).
Austerity
There is a crunch coming here and we can start with a Shirley Bassey song.
The minute you walked in the joint
I could see you were a man of distinction
A real big spender
Or as this chart from Daniel Kral shows.
As you can see from the chart like so many France let her deficit rip through Covid but crucially after beginning to trim it did rather a U-Turn. There were plans to return the deficit to the levels of what we might regard as an old friend which is the Growth and Stability Pact which has done rather a rave from the grave. The trouble is that in the present political situation things have been slip sliding away again. This week Le Monde reported this.
This unexpected rise, contrary to the planned decrease, is attributed to lower-than-expected fiscal revenues. Le Maire, along with Deputy Minister Thomas Cazenave, urges for immediate savings of €16 billion.
There has been a tax shortfall with estimates for next year of the order of a 30 billion Euro cut to get things on track. Will that be the “on track” that collapsed the Greek economy? Not really as the scale is different but it will be a brake on economic activity.
As to the national debt it is quite some distance away from the Euro area target.
French public debt was 110.6% of GDP in 2023 and the Commission expects it to increase to 112.4% this year and 113.8% in 2025. That is almost twice the EU limit of 60%. ( Reuters)
Comment
There are various conflicting economic objectives here. Once the economic boost from the Paris Olympics is out of the system then the outlook is not bright. But it looks rather likely that a dose of fiscal austerity is on its way which will slow things further. That then gets more awkward as we see the ECB likely to cut interest-rates but at the same time approving of the fiscal austerity.
This of course relies on France being able to impose some form of austerity in its present political turmoil. Is that the real job that Michel Barnier has? Underlying all of this is the reality that so many western governments have been fiscally spendthrift but economic growth has mostly been rather thinner on the ground.