France : Economic developments and reforms, where are we heading? The Economic Club of New York : 18 April 2018 François VILLEROY de GALHAU, Governor of the Banque de France 1
WHERE ARE WE STARTING FROM? SLOWDOWN IN POTENTIAL GROWTH 2
SOME STRONG FRENCH ASSETS (1/2): CAPITAL AND INNOVATION Private non-residential gross fixed capital formation (% of GDP, OECD) Government gross fixed capital formation (% of GDP, OECD) 14.0 5.0 13.5 4.5 13.0 4.0 12.5 3.5 12.0 3.0 11.5 2.5 11.0 2.0 10.5 2002 2004 2006 2008 2010 2012 2014 2016 1.5 2002 2004 2006 2008 2010 2012 2014 2016 United States France Germany United States France Germany Source : OECD Source : OECD Fastest-growing technology companies in Europe, the Middle East, and Africa (EMEA) during the past four years. Growth for individual companies on the list ranged from 220 percent to 107,117 percent. Winners were selected based on percentage fiscal-year revenue growth from 2013 to 2016. Source : Deloitte 3
SOME STRONG FRENCH ASSETS (2/2): LABOUR Source: Eurostat 4
1. A favourable momentum : a robust upturn creates an appropriate timing for reforms 2. This momentum is being harnessed to implement ambitious and consistent reforms 5
A POSITIVE CONFIDENCE SINCE SPRING 2017 108 106 Business sentiment in manufacturing Source: Banque de France monthly survey in manufacturing 100= long term average 108 106 112 108 Consumer confidence Source: Insee monthly consumer survey 100= long term average 112 108 104 104 104 104 102 102 100 100 100 100 96 96 98 98 92 92 96 2015 2016 2017 2018 96 88 2015 2016 2017 2018 88 Source: IPSOS; survey on attractiveness among executives of foreign firms in France 6
STRONG RECENT PERFORMANCE OF THE FRENCH ECONOMY AND SUPPORTIVE MEDIUM TERM PROSPECTS GDP growth and its components (%/pp) GDP growth (%, YoY and annual average) 2.5 2.5 2.8 2.8 2.0 1.5 2.0 1.5 2.4 2.4 1.0 1.0 2.0 2.0 0.5 0.0 0.5 0.0 1.6 1.6-0.5-0.5 1.2 1.2-1.0 2010 2012 2014 2016 2018 2020 GDP growth Private consumption Private investment Public demand Net exports Inventories -1.0 0.8 0.8 I II III IV I II III IV I II III IV I II III IV I II III IV 2016 2017 2018 2019 2020 GDP growth March Forecast - YoY GDP growth December Forecast - YoY GDP growth - Annual average Strong GDP growth in 2017 (2.0% after 1.1% in 2016). Source : Insee, Banque de France projections GDP growth should then remain above its potential rate, at 1.9% in 2018, 1.7% in 2019, 1.6% in 2020. Growth should be more balanced: rebound in exports in 2018 and dynamic domestic demand over the entire projection horizon. 7
THE UNEMPLOYMENT RATE SHOULD FALL TO JUST BELOW 8.0% AT END-2020, ITS LOWEST LEVEL SINCE END-2008 Quarterly changes in employment (in thousands) Unemployment rate (% of labour force) 100 80 60 100 80 60 11.0 10.5 11.0 10.5 40 40 10.0 10.0 20 0 20 0 9.5 9.5-20 -20 9.0 9.0-40 -60 2010 2012 2014 2016 2018 2020 Non-market sector employment Market-sector salaried employment Non-market sector salaried employment Total job creations -40-60 8.5 8.0 7.5 2010 2012 2014 2016 2018 2020 8.5 8.0 7.5 Source : Insee, Banque de France projections 2017 was marked by significant employment gains, with 276,000 new jobs. This trend should continue over the projection horizon, with between 180,000/200,000 new jobs expected to be added each year, despite the 2018 cut in subsidized contracts. In 2019 and 2020, market sector employment should be supported by the transformation of the CICE tax credit into a permanent cut in employer social security contributions. 8
THE PAY-OFFS OF REFORMS IN EUROPE GDP, cumulated growth over 2014-2017 (%) Employment, cumulated growth over 2014-2017 (market economy, %) *except Ireland. 9
1. A favourable momentum : a robust upturn creates an appropriate timing for reforms 2. This momentum is being harnessed to implement ambitious and consistent reforms 10
PUBLIC FINANCE Source: Eurostat Some ongoing reforms Public deficit down to 2.6% in 2017 (from 3.4% in 2016) Reduction of the tax burden on corporate income (to 25% in 2022) and capital Source: Eurostat, based on COFOG nomenclature 11
AMBITIOUS LABOUR MARKET REFORMS Widen the negotiation space given to social partners for decision-making: Social partners become the true actors of the effective labour regulation This process can reconcile efficiency and worker protection Simplify staff-representation obligations: Enlarge the negotiation field and hence ease compromise Reduce the uncertainties of labour disputes and better secure labour relations: Cap severance pay in case of abusive lay-off New type of collective layoff by mutual consent 12
A BETTER-FUNCTIONING LIFELONG TRAINING AND APPRENTICESHIP SYSTEM Vacant employment and unemployment rates Apprenticeship and youth unemployment rate (2016) Sources: Apprenticeship: Germany: BiBB ; France: INSEE ; Italy: Report Cedefop Italy ; unemployment data: Eurostat. Source : DARES, INSEE Some ongoing reforms Reform of primary and secondary education Reform of academic orientation Reform of apprenticeship Reform of lifelong training 13
LABOUR MARKET REFORMS INTERRELATED WITH PRODUCT MARKET REFORMS Source : OECD Reforms done: Macron law (2015) Railway reform underway 14
FOUR ACCELERATORS OF THE ECONOMIC UNION Macroeconomic accelerator: A collective economic strategy, A precautionary-oriented instrument, a euro area investment budget S Microeconomic accelerator: A Financing Union for Investment and Innovation National reforms Fiscal accelerator: Euro area investment budget A S A S Institutional accelerator: Euro area Finance Minister A S Allocation function Stabilisation function 15
RULES-BASED MULTILATERAL ORDER France is heading in the right direction and at a fast pace with a strong government commitment to reforms. The European and international environments need to remain supportive. In particular, we need to maintain an open international environment, a rule-based multilateral order. 16