Perspectives

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EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
France  
2
019, another testing year  
2
019 is getting off to a less strong start, with economic activity having taken a hit from the ‘gilets jaunes’ protest movement. The  
collapse in consumer confidence has been abrupt and the global environment looks less certain. Against this background, fiscal  
policy is being loosened: the new plan to support the purchasing power of lower income households, announced in response to  
December’s demonstrations, should help consumer spending to catch up, at least in part. It comes alongside measures already  
introduced in the 2018 budget to support consumers and companies. French growth is therefore likely to show signs of resistance.  
A look in the rear-view mirror at what happened in 2018 helps set  
the particular context as we move into 2019. Many things changed  
in just one year. The optimism that reigned at the beginning of 2018  
proved short-lived. The strong growth that was expected as a result  
at that time, building on that in 2017, did not materialise. And,  
having looked exceptionally clear at one point, the outlook grew  
significantly less rosy over successive quarters.  
1- Growth and inflation  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
2.3  
2
.1  
1
.6  
1.6  
1
.5  
1.5  
1
.3  
Yellow card  
1.1  
1.2  
17  
There were many reasons for this. External headwinds (a strong  
euro and high oil prices, trade tensions and the slowdown in global  
growth) coupled with domestic factors (supply-side constraints and  
recruitment difficulties) contributed to depress the underlying trend  
to a degree that exceeded expectations. French growth also faced a  
series of five shocks. Two were predictable, but proved highly  
disruptive (tax increases in Q1; the introduction of the Worldwide  
Harmonised Light Vehicle Test Procedures, or WLTP, in Q3); the  
other three were of the unforeseeable sort (warm winter weather;  
transport strikes in Q2 and the ‘gilets jaunes’ protests in Q4).  
0
.3  
1
6
17  
18  
19  
20  
16  
18  
19  
20  
Source: National accounts, BNP Paribas  
2- Confidence surveys  
INSEE consumer confidence [LHS]  INSEE business climate [LHS]  
Bank of France business climate [LHS] ▪▪▪ Composite PMI [RHS]  
1
20  
65  
60  
55  
50  
It follows that despite the dissipation of the factors that held back  
growth in Q2, there was scant recovery in Q3 (0.3% q/q according  
110  
1
to the third estimate , after 0.2% q/q in Q2) and growth is expected  
100  
to be again dragged down in Q4, with the ‘gilets jaunes’ protests  
wiping out the rebound that had been expected before the protests  
took place.  
4
5
0
9
8
7
0
0
0
4
35  
30  
As far as the third quarter limited growth rebound is concerned, this  
was due to the limited upturns in consumer spending (0.4% q/q,  
from -0.1% q/q in Q2) and exports (up by just 0.3%, having been flat  
in Q2 and fallen by 0.4% q/q in Q1). These lacklustre figures came  
alongside similarly unimpressive numbers for public investment  
25  
20  
60  
2007  
2009  
2011  
2013  
2015  
2017  
2019  
Source: INSEE, Bank of France, Markit  
(
stable after a 0.6% q/q rebound) and household investment (down  
just 0.1%, although this was the first quarterly decline since Q2  
015). Although the contribution from net exports was positive (0.3  
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largely the result of the ‘gilets jaunes’ movement , due mainly to its  
negative impact on consumer spending (which we now expect will  
struggle to grow, despite tax cuts which we previously expected to  
stimulate a rebound), but this is not the only effect. Business  
investment is also likely to be hit (accentuating the expected  
payback on investment in manufactured goods following the  
introduction of WLTP), as are exports (via a fall in tourist spending,  
which will eat into the strong expected increase as a result of late  
deliveries by Airbus and various other major contracts). A fall in Q4  
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of a percentage point), that was the only positive thing about it, as it  
was the result of a fall in imports (-0.6% q/q) and came alongside a  
negative contribution from inventories (-0.4 ppt). Business  
investment was alone in showing real vigour, and indeed growth  
accelerated from Q2 (1.3% q/q) to Q3 (1.5% q/q).  
As far as the expected brake on growth in Q4 is concerned (we are  
now expecting 0.2% q/q instead of 0.6% in early October), it is  
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See also “France: A serious but temporary drag on growth”, EcoFlash n° 15,  
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The first estimate, confirmed by the second, was a little higher at 0.4% q/q.  
17 December 2018  
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10  
EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
GDP cannot be ruled out, but this is not the most likely scenario. For  
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Household purchasing power gains and consumer  
2018 as a whole we now expect growth to reach 1.5%.  
confidence  
For the time being the only macroeconomic indicator of the negative  
effect of the ‘gilets jaunes’ protests has been the fall in some  
confidence surveys (see Chart 2). The fall in consumer confidence  
has been spectacular (down by 3 points in November and a further  
 Consumer confidence [LHS] ▪▪▪ Year-on-year change in household  
purchasing power [RHS] ▪▪▪ forecast  
110  
3%  
1
05  
00  
95  
4
points in December, taking it to 87, well below its long-term  
2%  
1
average of 100, and its lowest level since the end of 2014), with  
large declines also in the retail trade sector (down 7 points in  
December in the INSEE survey, taking it to 100, i.e. its long-term  
average) and services (down 6 points in December for the Markit  
PMI, thus falling to 49, representing the first time it has dipped  
below the threshold of 50 since 2016).  
1
%
%
9
0
5
0
8
-
1%  
80  
7
5
-2%  
Other December surveys were less negative (-2 points for the  
INSEE survey and -1 point for the PMI in the manufacturing sector),  
positive (+2 points for the Bank of France industry survey) or flat  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019  
Source: INSEE, BNP Paribas forecasts  
(
INSEE and Bank of France surveys in the services and  
On the domestic front, our scenario of resilient growth is based on  
two central factors . The first relates to the underlying trend, which  
construction sectors).  
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So the economic picture is not uniformly gloomy. The results of the  
Bank of France’s surveys have allowed it to maintain its Q4 GDP  
growth estimate at 0.2% q/q. The good news, as we see it, lies more  
precisely in the absence of any further downgrading of this estimate  
after the 0.2 point cut in November. Between its Conjoncture in  
France report in October and its December report, INSEE also cut  
its Q4 growth estimate by 0.2 of a point from 0.4% to 0.2% q/q. Our  
own ‘nowcast’ model, based on survey data, suggests something a  
shade more positive, with estimated growth of between 0.3% and  
we still believe to be solid, albeit somewhat slower, in particular  
thanks to a labour market that is expected to remain on the right  
track. We are forecasting an increase in private payrolls in line with  
that in 2018 (at an average of around 1% over the year), a fall in the  
unemployment rate that will be only barely smaller than last year  
(
(
-0.2 of a point to 8.9%) and stronger momentum in wage growth  
increases of nearly 2% for the basic monthly wage indicator and  
2.5% for the average earnings per worker indicator).  
The second source of resilience is the positive impetus of economic  
and fiscal policy. This impetus is for a part channelled through  
support to companies via the transformation of the employment and  
competitiveness tax credit (CICE) into a reduction in employers’  
social contributions. A larger share of the impulse will come from the  
expected positive effect on consumer spending of the tax cuts  
approved in the 2018 budget, backed up by the measures to  
support the purchasing power of lower income households  
announced by President Macron on 10 December, in response to  
0.4% q/q. The figure based on hard data is lower, however, at 0.2%,  
and carries a downside risk. Indeed, in the absence of figures for  
December, the assumption used of a continuation at November’s  
level has the advantage of simplicity but almost certainly errs on the  
side of optimism.  
2019: new year, same growth?  
After a year of strong and steady growth in 2017, which exceeded  
expectations followed by a year of weak and patchy growth,  
surprising on the downside, in 2018  what will the 2019 vintage be  
like?  
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the ‘gilets jaunes’ protests . This assumes that the link between  
purchasing power and consumer confidence  which was clearly  
broken at the end of last year  is restored (see Chart 3). We  
believe that this stimulus package will support growth to the tune of  
0.2 of a point. This additional growth will help offset the lower growth  
carry-over inherited from 2018, which not only leaves our 2019  
growth forecast unchanged at 1.6% (in annual average terms) but  
also means that growth will be relatively (and remarkably) stable  
compared to 2018.  
What is clear is that the year has begun with mixed prospects,  
worries are multiple and uncertainty considerable. There are many  
downside risks, whether international, financial or domestic. On the  
international front, the UK Parliament’s rejection of the agreement  
with the EU on the details of Brexit (re)opens a period of uncertainty  
over the outcome of the process. Another significant risk is that the  
US economy is heading for a landing, and fears of this have been  
revived by tumbling equity markets at the end of last year. The scale  
of the slowdown in China is also causing significant concern, but  
this is not new. By contrast, the dramatic slowdown in the German  
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economy in the second half of 2018 is a new source of worry.  
4
We are not overlooking the introduction of the withholding personal tax in  
January as the source of a possible shock to growth in Q1. But we believe that if  
there is to be a shock, it could just as easily be positive as negative.  
See EcoFlash cited above for details of the support package  
3
5
See page 3,7,15, 23  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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