Research Dept. News
|
|
|
|
Monthly Report, num 285 - November 2005
|
|
|
European Union - France
|
|
|
|
|
France: budget with hopes of lifting country out of stagnation
|
|
France: 2006 budget appears rigorous with major effort to contain spending but will be affected by optimistic growth forecasts on which it is based.
|
|
The French government presented its 2006 budget on September 28 last. It was a reasonably rigorous budget with a forecast increase in government spending of close to nil in real terms, apart from a new package of measures to foster employment. At the same time, it provides for other austerity budget measures, the most important being a reduction of 10,000 public servants in the government work force. The proposed income tax reform, which would reduce both the number of tax tables and the maximum rate applicable, will not come into effect until 2007 so that its impact on government revenues in 2006 is postponed. The deficit in 2006 is forecast at 2.9% of the GDP.
|
|
|
|
Unfortunately, the Achilles’ heel of the budget lies in the growth forecasts on which it is based. The government has drawn up its budget starting out with a range of growth at 2.0%-2.5% in 2006, which is above the forecasts of most analysts and especially higher than the 1.8% we have put forward in our own forecasts.
|
|
French recovery consolidating with better relative performance in domestic consumption, industrial production and exports, a trend which lies behind recovery of business confidence.
|
|
While the economy seems to have passed through the period of greatest weakness in the cycle, as shown by the continuing recovery of the economic sentiment index from June to September, the weak state of private consumption in the middle stretch of 2005 and the lack of strength in exports in the first half-year make it practically impossible to see growth of above 1.5% in 2005, a figure also backed by the INSEE, the French statistics office.
|
|
|
|
A similar reading (recovery, certainly, but rather contained) comes from the positive trend seen in the most recent indicators for household spending (domestic consumption grew by 4.2% year-to-year in September), industrial production (year-to-year increase of 1.0% in August) and exports (with increase to 5.9% in August although the bigger increase in imports at 8.2% would suggest that the foreign sector is continuing to take away from growth).
|
|
|
|
The trend in consumer prices is also favourable. While France has not escaped from the rises due to the rise in oil prices, the increase has been lower compared with other euro area economies. In September, the CPI grew by 2.2% year-to-year (1.8% in August) but, after discounting energy and other volatile components of the index, it stood at a contained 1.0% year-to-year. The reading of the labour market is less satisfactory as it continued to show an unemployment rate of 9.9% in August with no improvement over July and very close to the high relative levels reported since 2003.
|
|
|
|
In another sphere, we should point out that the timid economic reforms proposed by the French government (particularly the partial easing of hiring terms for small and medium-sized companies) brought the calling of a general strike by the French trade unions. Finally, although this involved more than 800,000 workers in some 143 demonstrations across the country, support for the strike on October 5 was lower than expected.
|
|
|
You can susbcribe now to be nofified by email every time the Monthly Report is updated in the internet.
|
All documents are in Adobe Acrobat format (PDF).
To view a document in PDF format you need the Adobe Acrobat Reader. If you don’t have it already loaded on your computer, you can donwload it now.
|
|
Direct link to the Research Dept. in your mobile
We'll send you a free SMS with the link
|
