France: Employment and the Economy Deteriorated

October 1st, 2012
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Econintersect:  The total of number of unemployed job seekers in France passed the three million mark in August, at 3.011 million, which was expected. As a percentage of the labour force this was 9.2% (10.1% for men, 8.3% for women), according to official figures this week.


Follow up:

The number was up by 254,000 from August last year and it is not easy to see what is going to stop it from increasing by the same number (at least) in the next 12 months.

The September report from INSEE  (National Institute of Statistics and Economic Studies) indicated:

'The French business climate remains deteriorated in September 2012'


Carlos Ghosn, CEO of auto maker Renault discussed the state of his company with Le Figaro:

Renault remains profitable, thanks to its alliance with Nissan.  Free cash flow is positive and will be positive for the year 2012.

However, Ghosen added that:

An improvement in the competitivity of France is a matter of survival for Renault.

No automaker can escape the reinforcement of its ability to compete in its home market, but it is not something that Renault can do on its own.

Signals from the government in recent weeks have encouraged Renault's boss.  They go in the right direction, he said, referring to the government's willingness to discuss improving labour market flexibility as well as improving cost competitiveness, probably by switching some “charges socials” from the employers and increasing either the value added tax on other broadly-based tax programmes.


Renault has no plans to close plants in France, unlike its rival Peugeot-Citroen, but measures to improve the group's position are on the table and will be the subject of internal discussions by the group in coming months.

The economic news this week was capped with the announcement of what the Financial Times called "tough budget measures."  What is tough about it is the significant increase in taxes on large corporations and wealthy individuals.  The only large spending cut came with a €2.2 billion decrease in the defence budget.  Some spending growth was curbed.  For example the increase in government health spending will be limited to €2.5 billion (2.7%) in 2012.

The attack on the deficit is dominated by tax increases.  The budget adds €20 billion in tax increases next year (or €27 billion if one includes €7 billion added to the current tax bill this year by a July interim budget).

Budget cuts and reduced spending growth will be about €10 billion, or only about 27% of the €37 billion total.  According to the Financial Times, one bullet on a government slide presentation read:
“Austerity rejected”
Assessment of the budget plan was cautious.  From the Financial Times:

Most private sector economists believe the government will probably miss its 3 per cent deficit target next year because growth will probably be weaker than the government’s forecast of 0.8 per cent.

Mr Moscovici acknowledged concern but insisted that greater stability in the eurozone and the government’s policies would enable it to hit or exceed the target.

“We are convinced the way things are evolving implies an improvement in confidence. I believe it is credible,” he said.

Investors gave the budget a cool reception with the CAC 40 index of big companies closing down 2.5 per cent.

Some economists and business leaders fear that the steep tax increases and relatively modest spending curbs could undermine France’s projected annual growth path of 2 per cent a year from 2014 to 2017, when it plans to have eliminated the structural deficit.

How tough are the tax increases?  The top bracket in France will be 75%.




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