Monday, October 29, 2007


The Economist highlighted the economic data on France (link). The forecast seems stable with a bulk of structural frictions such as the resistance to the reforms of the labor market structure. Growth prospects seem sluggish in the long-term perspective.

By 2010, the output growth rate is not expected to surpass 2 percent. Public finances are weak, reflecting the postponed pension reform. Enormously high pension outlays partly reflect the pressures holding France's public spending on record highs.

High public spending combined with punitive tax rates on income and productive behavior further discourage France's growth prospects. The fiscal consolidation is likely to remain slow. Budgetary spending remains anchored in deficit and the policymakers do not show any sign of turning budget deficit into surpluses as growth might accelerate at a faster pace.

The exchange rate is strong and the domestic prices are not expected to pose a threat to a stable and low inflation which peaked at 1,6 percent by 2007 subject to EU-harmonised measure.

On the growth side, household consumption is high and remains a mandatory GDP component. As a worrying sign, government consumption is currently higher than gross fixed capital formation in the share of the GDP despite the efforts to reduce direct taxes on corporate income and labor supply.

Read also:
Jurgen Reinhoudt: Showtime for Sarkozy, (link)
The Economist: Country Briefings: France, Economic Structure (link)
The Economist: Country Briefings: France, Economic Data (link)

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