The voters of France, the euro-zone’s second largest economy, will have a busy time during the next few years. Municipal elections in March will be followed by the presidential election in little more than a year from now when the present incumbent, conservative Jacques Chirac, is expected to contend the office with left-of-centre prime minister Lionel Jospin. In 2004 comes the European parliamentary election.
But already the French are showing a deep boredom with politics. At the September 2000 referendum, which sought agreement to reduce the presidential term from seven years to five, only about 30% of the electorate voted.
Nonetheless the referendum passed and will soon end the system of cohabitation in which a president and a prime minister of different political colours can occupy the highest positions of state with different, but equally valid, electoral mandates.
A major reason for the relative indifference of the French public to their politicians is that the country is flourishing – and is expected to continue doing so in 2001. According to INSEE (the French national institute for statistics and economic surveys), growth will be around 3%, maintaining the estimated 3.2% rate achieved in 2000, thanks to a marked acceleration in household spending, albeit a slowdown in exports. Inflation is set to ease to 1.6% by June, by when the jobless rate is forecast to have fallen to 8.7%. Analysts at the Economist Intelligence Unit are in broad agreement with these forecasts but expect a slowdown in GDP growth to 2.5% in 2002.
The French economic system is dirigiste, meaning that there is a high degree of state control of both economic and social matters. A recent case, notes Barclays in its Country Report: France, was the imposition by law in February 2000 of a 35-hour week on private sector companies with more than 20 employees. This will extend to cover smaller firms a year hence.
Yet despite their bureaucratic reputation successive governments have been aware of the need for economic flexibility in a world of increasing global competitiveness. Prime minister Jospin has sold off FFr180bn worth of state enterprises, beginning the privatisation of France Telecom, Air France, Thomson Multimedia and Aerospatial Matra.
Furthermore, the impact of constricting regulations has been watered down. Barclays points out, for example, that the 35-hour week laws allow the work-week to be averaged out over a considerable period of time; social security charges on part-time jobs have been reduced – the corporate sector now employs one worker in six on a part-time basis whereas a decade ago there was virtually no part-time employment.
Although the introduction of the 35-hour week raised hourly wages by 5.5% in 1999, productivity growth ensured that there has been no adverse impact on unit labour costs. In November, the latest month for which figures are available, the unemployment rate was 9.2%, down from a peak of 12.6% in June 1997. A further boost to employment has been the 350,000 emplois-jeunes – jobs subsidised by the state for five years.
Meanwhile, annual economic growth of 3.5% in the first half of 2000 moderated to 3.1% in the third quarter of last year, while high oil prices and September’s transport blockade temporarily dented economic confidence among manufacturers and consumers.
However, business leaders surveyed in September by Banque de France reported that production increased sharply across the board and that the trend continued in October. Construction activity also strengthened in the third quarter. The latest INSEE survey confirmed that new construction work and renovation and maintenance were all buoyant during the quarter.
The third quarter also saw an acceleration of activity in all branches of the service sector, but stronger household spending on services appears to have been to the detriment of purchases of manufactured goods. INSEE’s December survey of consumer confidence rose to its highest level since it was established in 1985, in spite of sharp falls in the stock market, which mirrored the losses on Wall Street.
A three-year programme of tax cuts, totalling FFr120bn (1.2% of GDP), will give a substantial boost to the economy, with household disposable income expected to grow by 3.7% this year. In the corporate sector the tax burden is being reduced to 33% by the cancellation of a 10% surcharge on profits introduced in 1995.
Investment trends are healthy too, with significant expenditure planned for 2001 to reduce excessively high capacity utilisation rates (86.6% in industry during the third quarter – more than 3% above the long-term average) and to automate sectors of manufacturing where recruitment difficulties are impeding output.
In foreign relations French politicians are seeking a balance between the nation’s role as a medium-sized power on the international stage and its wish for independence. ‘From time to time,’ writes Jean Daniel in The World in 2001, ‘France favours the Russians, the Chinese and even the Iraqis against America and Britain… But no one is more secretly atlantique than the French. Do not expect to see this change.’
Overall, the outlook for France is fair. Laurent Fabius, the French finance minister, recently told the Financial Times, ‘2001 will see us pursuing the “political economy of job creation”, and it should also be a good year for the economy.’ Nonetheless, high oil prices, the weak euro which has forced import price inflation into double figures, and the slowdown of the US economy remain significant potential risks to sustained, low inflation expansion.
