Proven resilience

EcoPerspectives // 4 quarter 2019  
Proven resilience  
The French economy continues to show proof of resilience judging from the stability of its GDP growthat an annualised rate of just  
over 1%and the relatively strong showings of confidence surveys and of the labour market. Although prospects are still favourable,  
the horizon has darkened in recent months with Germany showing signs of recession, the escalation of trade tensions and lingering  
uncertainty over Brexit. We expect business investment and exports to decelerate sharply under the weight of a more uncertain, less  
buoyant external environment. Yet the slowdown is likely to be offset by the expected rebound in household consumption, supported  
by major fiscal measures to boost household purchasing power.  
Cyclical indicators are still flashing green  
1- Growth and inflation  
After a preliminary estimate of 0.2% q/q, the second estimate of  
Q2 2019 growth was revised upwards to 0.3% q/q, in line with  
expectations. Since Q3 2018, growth has not been very strong but  
remarkably stable and more solid than it appears at first glance:  
indeed, it relies on an average 0.4-point contribution of final  
domestic demand. Hopes of a rebound in household consumption  
were dashed again in Q2 2019, as it rose by only 0.2% q/q after  
GDP Growth (%)  
Inflation (%)  
.3% in Q1. This bad news was nonetheless offset by good news on  
the investment front, with business investment accelerating to 0.9%  
q/q from 0.6%, and surprisingly strong household investment, up  
.8% q/q from 0.1% q/q. Changes in inventory and net exports  
moved in opposite directions again, with the former making a  
negative contribution of 0.2 points (after +0.3) and the latter a  
positive contribution of 0.1 points (after -0.3). The change in the  
contribution of net exports can be attributed to imports (-0.2% q/q  
following +1.1%) while exports remained sluggish (0.0% q/q  
following 0.1%), strapped by an unusually sharp decline in service  
Source: National accounts, BNP Paribas  
2- Robustness of non-farm payroll employment  
Change in non-farm payroll employment (annual average, ‘000s)  
Contribution of employment policies  
Q3 growth prospects are still looking positive based on business  
confidence surveys available through September. Survey results  
suggest that growth will hold at the same pace as in the two  
previous quarters. On average, the INSEE composite index for Q3  
held at the same high level as in Q2 (106), while the Markit  
composite PMI was slightly higher at 52 (from 51.3). The upward  
trend of these surveys since the beginning of the year, as timid as it  
may be, is another encouraging sign, as is the fact that weaker  
signals from the manufacturing sector have failed to spread to  
services for the time being. Lastly, consumer confidence is sending  
the most positive signal of the confidence surveys. In September,  
consumer confidence increased for the ninth consecutive month to  
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  
Source: INSEE, French government, BNP Paribas  
04. This score is sufficiently higher than the average reference  
and the next ones as well (we have lowered our 2019 and 2020  
growth forecasts by 0.1 and 0.2 points, respectively, to 1.2% and  
1% ) is our fairly negative analysis of Germany’s economic situation  
(see article in this publication), which spills over to French growth  
via the export channel.  
point of 100 to consider that French households are no longer less  
pessimisticbut more optimistic. Particular satisfaction can be  
expressed regarding the significant decline in fears about the  
evolution of unemployment.  
Our Nowcast model puts a damper on this positive interpretation of  
the survey results. Based on these soft data, Q3 growth is estimated  
at 0.2% q/q . This is in line with our growth forecast, while the  
INSEE and the Bank of France are estimating Q3 growth at 0.3%  
q/q. The reason we are somewhat less positive about this quarter  
We also expect business investment to drop sharply in the face of  
uncertainty, whose negative influence will be larger than the  
favourable impact of the currently loose financial and monetary  
conditions. Although business confidence survey in the wholesale  
sector is not showing any early warning signs of such a deceleration  
The estimate based on hard data is only 0.1% q/q, but it is not very reliable since  
These forecasts are lower than the Consensus mean. Our scenario is  
all Q3 data is not available yet.  
relatively pessimistic, explaining why we see risks as evenly balanced.  
EcoPerspectives // 4 quarter 2019  
in business investment, the balance of opinions about investment  
are more mixed in the services sector. Moreover, in July, industrial  
business leaders revised sharply downwards their investment  
expectations for 2019. Moreover, after peaking in early 2018,  
capacity utilisation rates have also fallen by a little more than two  
points to 83.4%.  
- Green budgeting  
Following the One Planet Summit in 2017, the OECD launched the  
Paris Collaborative on Green Budgeting to encourage the sharing of  
best practices in green budgeting (methodology and tools). In this  
respect, national budgets stand out as key levers for governments in  
fulfilling their environmental commitments.  
Since household consumption has still not picked up, we have also  
revised downwards our expectations. The latest monthly figures for  
household consumption of goods in August hardly showed any  
signs of a rebound. Consumption of core manufactured goods is not  
a lot more vigorous (transport equipment, residential goods, clothing  
and other goods). Even so, a rebound still seems like the most  
probable hypothesis, especially given the recent upturn in  
household confidence and new government measures to boost  
household purchasing power in the 2020 budget.  
A green budget details the environmental impact of government  
spending and revenue. A color-coded classification system, ranging  
from brown to green, highlights the environmental effects of fiscal  
and budgetary measures. Such a layout provides greater  
transparency for evaluating the budget’s compatibility with the  
country’s environmental goals. Moreover, this method can spur a  
virtuous circle from one year to the next, as the classification of  
measures as “brown” may create greater incentives for taking  
corrective measures.  
In France’s case, the Inspection Générale des Finances* (IGF) and  
the Conseil Général pour l’environnement et le développement  
durable** (CGEDD) submitted a preliminary report on this topic to the  
government in September 2019. They focused solely on classifying  
spending measures, as a consensus on the definition of  
environmental taxes has already been established. The report  
defines six environmental criteria:  
Support from the labour market  
The buoyant labour market is both a cause and a consequence of  
the observed and expected resilience of French economic growth.  
The labour market’s strength can be seen above all in the number of  
job gains, which continues to be surprisingly strong. The growth of  
private sector payroll employment is only slightly lower than the  
pace of GDP growth (1.3% in Q2 vs. 1.4% in year-over-year terms).  
This relatively robust momentum is accompanied by tensions (hiring  
difficulties, labour shortage) which, though no longer rising, are still  
strong. The upward pressure this tends to put on wages, however,  
has been limited so far, for a part because of the feeble labour  
productivity gains arising from the job-rich nature of growth.  
According to the DARES, this might also reflect the nature of labour  
market tensions: “higher pressures seem to be largely due to high  
job turnover rates in certain very labour-intensive sectors for low-  
skilled workers, such as construction, personal services and food &  
-Fighting climate change;  
Adapting to climate change;  
Sustainable management of water resources;  
Transition to a circular economy and risk prevention;  
Prevention of pollution;  
Preservation of biodiversity and the sustainable management of  
natural spaces, farmland and forests.  
Each spending item is given a score for each of these criteria using a  
scale of -1 (unfavourable) to 3 (very favourable).  
As part of their study, the IGF and the CGEDD applied this method  
to four missions of the 2019 draft finance bill, in which EUR 55 bn of  
spending measures appeared as non-neutral. Between EUR 33 bn  
and 36 bn of spending measures were marked as favourable to the  
environment for at least one of the six criteria, and EUR 25 bn were  
marked as unfavourable for at least one of the criteria. Nearly half of  
the spending measures deemed unfavourable to the environment for  
at least one criterion (representing EUR 12 bn) are tax expenditures,  
and more precisely exemptions from domestic energy consumption  
taxes on petrol.  
hotel services” .  
Unemployment statistics also reveal the robust nature of the labour  
market. The unemployment rate, which has fallen continuously  
since mid-2015, dropped to 8.5% in Q2 2019, the lowest level in ten  
years. Apparently, this is not only a cyclical decline. According to the  
DARES, the structural component has also fallen thanks to the  
reforms undertaken in recent years, notably to reduce the cost of  
As a new practice, green budgeting is still at an early stage. The  
government has announced that it will introduce its first real green  
budget in 2021. The 2020 budget already fits within this framework  
given the publication of a new appendix to the budget proposal,  
entitled “Financing the Ecological Transition: economic, fiscal and  
budget tools at the service of the environment and the climate”. As  
provided for in the 28 of December 2018 finance bill for 2019, it  
replaces the three existing appendices on the topics of  
environmental protection and climate change. This represents a first  
step in simplifying the analysis of the compatibility of the French  
budget with the country’s environmental commitments.  
Labour market prospects are still favourable too, both in the short  
term, based on the survey results available to date, and from the  
horizon of 2020, given the measures taken to enrich the job content  
of growth (see chart 2).  
DARES, Le marché du travail en Ffance : bilan des deux dernières années et  
The General Inspectorate of Finance  
* The General Council on the Environment and Sustainable Development  
perspectives, Rendez-vous de Grenelle, 12 September 2019  
CICE tax credit switch into an employers’ contributions cut, Pacte law, hiring  
Source: French government, IGF, press.  
Text box compiled by Zoé Klein, intern, BNP Paribas Economic Research Group  
bonus, investment in skills plan (PIC), reform of the apprenticeship and  
vocational training system, unemployment insurance reform, increase in in-work  
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.
Ce site présente leurs analyses.
Le site contient 2452 articles et 630 vidéos