Research Dept. News
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Monthly Report, num 348 - July-August 2011
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European union - France
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France: improvement in the labour market confirms its economic expansion
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The trend in wage increases gets stronger in Germany but is offset by growth in productivity.
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After strong growth in the first quarter, the French economy seems to be continuing its expansion in the second, albeit at a slower rate. The push is coming mostly from private consumption and investment. Available indicators are compatible with the quarter-on-quarter growth forecast of half a percentage point. We have therefore not altered our forecast of a 2.2% annual rise in gross domestic product for 2011.
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The French economy continues to expand, albeit at a slower rate.
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In April, the consumption of manufactured goods by households fell notably compared with the previous month, due to durables and particularly cars. However, in May consumer confidence improved slightly thanks to the sustained dynamism of the labour market and inflation easing back. Passenger car registrations therefore accelerated and posted a year-on-year rise of 6.5%.
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With regard to the foreign sector, in April the current account deficit widened after its improvement in March. The deterioration in the trade balance was greater than the slight improvement in the services surplus. This record trade imbalance was pressurized by rising prices for energy products but also reveals problems of competitiveness, brought into sharper relief by a strong euro.
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On the supply side, industrial production fell slightly in April and the year-on-year rate of change slowed up to 2.6%. Similarly, new industrial orders fell in March. However, the level of order portfolios was above the long-term average, ensuring a notable pace of activity in the secondary sector over the coming months. For its part, construction is looking extremely lively. Lastly, although the climate for services worsened slightly in May, its level was optimistic, pointing to expansion but to a lesser degree.
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The European Commission recommends the French authorities rigorously apply measures to correct the excessive public deficit.
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The economy's dynamism is reflected in the labour market. In the first quarter, salaried employment in the market sectors rose by 1.1% compared with the same period the previous year. In April, the number of people looking for employment posted a drop for the fourth consecutive month, confirming the exit from the crisis, and the unemployment rate fell slightly to 9.4%. In line with this, wages have picked up their rate of increase. However, consumer price inflation fell by one tenth of a percentage point in May to 2.0% due to the turnaround in energy prices that month.
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Other indicators also show the improved tone of the French economy. There's a downward trend in the number of business failures and, in May, the number of new start-ups picked up. Similarly, in April the recovery in credit to non-financial firms consolidated, of note being the large growth in credit to SMEs. Within this context of economic improvement, the bill was presented to rectify Social Security for 2011, containing a lower deficit than the one projected in the initial proposal. On the other hand, this law establishes that employees in firms with more than 50 people on the payroll and whose shareholder dividends have increased compared with the last two years can benefit from a premium that would be set in line with collective bargaining.
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Nonetheless, the European Commission, in its recommendations regarding the 2011-2014 stability programme, believes that the macroeconomic scenario on which the budget projections are based is too optimistic and recommends rigorously implementing the measures to correct the excessive public deficit by 2013 at the latest. In this respect, it states that the viability of the pension system needs to be examined. Moreover, it encourages the country to combat the segmentation of the labour market and to promote access to training in order to help older workers remain in active employment.
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