The French economy (5th largest worldwide) is diversified across the different sectors. Being the first destination for visitors in the globe, France generates the 3rd largest income in the world from tourism (more than 84.5 million international visitors in 2015). Not surprisingly, most of its workforce is employed in the services sector. The country is also one of the biggest exporters of agricultural products worldwide; however, less than 5% of the French workforce is occupied in Agriculture. On the other side, 35% of employees work in science and technology, attributing to France the 2nd place as far as R&D activities worldwide, in the relative country listings. The Industry sector alone –representing the 13.8% (€263 million) of the French GDP- invests €23.4 million to R&D. Nowadays, 125,000 exporting companies exist in France, with 50% being large corporates and only 16% classifying as SMEs (Small-Medium Enterprises).
According to World Bank data, after a 3-year period of limited economic growth, France’s GDP growth rate increased by 0.9%, to 1.1% in 2015 (See chart below). However, it should be mentioned that lower-than-expected growth and high spending, have strained France's public finances.
More specifically, France's public debt rose from 68% of the GDP to more than 98% in 2015, and may hit 100% in 2016. At the same period, the budget deficit had risen sharply, reaching the 7.5% of GDP in 2009, before improving to 3.5% in 2015 - still though exceeding the 3% limit requested of the EU member states. According to the 2016 Budget, public deficit is expected to return to 2008 levels, falling to 3.3% in 2016 and 2.7% in 2017. Towards this goal, it is crucial that in case of emergencies and unforeseen events, no new expenditure will take place, without savings to finance it.
Future projections, predict further GDP rate increase, reaching an average growth rate of 1.5% (See the chart below). Favourable domestic dynamics, including low financing costs, reduction in social security contributions, Tax Credit for competitiveness and Employment (CICE), gradual recovery in business investment (projected to rise by 3.4% in 2016 and by 3.3% in 2017), as well as the recovery in demand, will all contribute towards this GDP rise.
On the other side, low oil prices will still lift –to a low extent- the household purchasing power, and private consumption will continue to grow, but only due to a decline in the savings ratio.
In 2015, the deficit on trade of goods was reduced by 22% to €45.7 billion, due to the reduced oil prices. More specifically, French goods exports reached €456 billion, increased by 4.3%, after 2 years of moderate growth. 2/3 of the exports concerned industrial products, while significant quantities of wine and meat were exported to countries like Germany, Belgium or the United States.
The Transport sector, including aviation (+11.4%) -amounting to €58 billion exports-, the automotive industry (+9.1%) and the luxury goods exports (+8.9%), were the main drivers of this growth (compared to 2014); Airbus, Renault, Peugeot & Citroen Automobile were the top three exporting French companies.
|
Top 10 French Exporting companies |
|
|
1 Airbus SAS |
6 ArcelorMittal Atlantique et Lorraine |
|
2 Renault SAS |
7 Total Raffinage France |
|
3 Peugeot Citroen Automobile |
8 Schneider Electric Industries |
|
4 Snecma |
9 Dassault Aviation |
|
5 Sanofi Winthrop Industry |
10 Lilly France |
Source: http://www.economie.gouv.fr
In total, the year 2015, was a pretty good one in terms of export growth for France. The country increased significantly its market share in the US (+19.5%), Middle East (+12.7%), China (+11.2%) and Africa (+4.1%), while the top five export destinations of French goods were Germany, the US, Spain, Italy and the UK.
On the other side, imports (excluding the energy and military equipment sectors) were increased by 5.7%, with particularly large increases in aeronautics (+ 13.7%), automotive (+ 11.8%) and computer and electronic products (+ 9.0%). Imports of textiles and phones from Asia, as well as aeronautics and pharmaceutics from the US, were significantly strong. In contrast, oil products imports from Africa (Nigeria, Libya), Russia, Kazakhstan and Saudi Arabia, dropped.
Overall, the deficit in goods was decreased by €12.5 billion to €60 billion, with imports rising to €515.9 billion and exports to €456 billion (See chart below).
In terms of services, France was the 3rd largest exporter worldwide, in 2014. According to the Banque de France, the services’ exports growth, slowed down in 2015 (3.8% in 2015 vs. 7.7% in 2014).
According to macroeconomic projections of the Banque de France, a fall in global demand will slow down French exports by 3.3%, over the period 2016-2017; this may be mitigated partially by reduced imports. However, these predictions may change, as this has happened in the near past (1st quarter of 2015).
Before the 2008 crisis, France had implemented various structural reforms, allowing a significant increase in the employment rate and a sharp decrease in the structural unemployment rate. However, having only a small impact on productivity, France’s competitiveness remained weak. As soon as the crisis started, the French government responded quickly, by introducing numerous policy interventions -operating as stabilizers- that cushioned the severe effects of the unprecedented economic crisis (from 2008 onwards) on the labour market. After a five-year period (2008-2013) that France experienced a continuous increase of the unemployment rate, today (as for 2014), many short-term jobs, dynamic compensation schemes and tight budgets have resulted in the unemployment rate, stabilizing at about 10.3%.
Finally, it is worth noticing that the unemployment rate in France, averaged at about 9.2% from 1996 until 2015, reaching an all-time high of 10.5% in the 1st quarter of 1997, and a record low of 7.4% in 2008.
France is an attractive economy for foreign investors, due to the diversity of its sectors, its high-qualified workforce as well as its key structural advantages. The majority of investment projects in the country come from Europe (61%), followed by North America (22%) and Asia (12%)
Following the European Union’s trends, Foreign Direct Investment (FDI) in 2014 in France, decreased significantly to US $7.9 billion -compared to US $33.5 billion in 2013 (see chart below). In 2015, France was ranked among the 10 leading FDI inflow recipients in the world.
Despite the negative environment, foreign firms made a strong contribution to the growth of the value of French mergers and acquisitions in 2015 (see chart below), proving France’s attractiveness as a destination to do business in. Moreover, France hit a record last year (2015), in both the number and total value - €137 billion in 2015 versus €82 billion in 2014- of related transactions.
Despite the aforementioned, public debt is still rising, indicating the need for further structural reforms related to the labour market, environmental policy, vocational education, control of governmental & social spending, as well as the reduction of barriers in retail trade and simplification of the business environment.