Report on Economy of France

Submitted to
Mashrifa Islam
University of Liberal Arts, Bangladesh
Submitted By
Name ID

Moupia Saha 191015014

Shipra Mondal 191051047

Shamima Akter 183051057

Maisha Quader 191051049

Musfequr Rahman 191051015

 Introduction

The economy of France is highly developed and free-market-orientated. It is the world's 7th
largest economy by 2019 nominal figures and the 10th largest economy by PPP figures. It is the
3rd largest economy in the European Union after Germany and United Kingdom.

France has a diversified economy. The chemical industry is a key sector for France, helping to
develop other manufacturing activities and contributing to economic growth. France's tourism
industry is a major component of the economy, as France is the most visited destination in the
world. Sophia Antipolis is the major technology hub for the economy of France. Paris is ranked
as the most elegant city in the world, which propels the agglomeration of the fashion industry.
According to the IMF, in 2018, France was the world's 19th country by GDP per capita with
$42,878 per inhabitant. In 2017, France was listed on the United Nations's Human Development
Index with a value of 0.901 (indicating very high human development) and 21st on the
Corruption Perceptions Index in 2018. The OECD is headquartered in Paris, the nation's
financial capital.
 Methodology

As all of our discussion would be on economic data provided by various world economic

institutes. The study could be exploratory Case study. For literature Review our group collected

previous research on this area; some of them are on economy of France, some of them are about

the series of data on year basis. So, our data collection process would be secondary data, there is

no primary data collection because all of the data are listed by different economic institute and

available in internet.

Sample Size: As we are working with 10-20 years of data.

Data Collection Method: We collected data from different Economic Research Paper, Fact

Sheet and website.

Data Analysis Procedure: Entering the data in to Spreadsheets we observe and study the data,

per year GDP, Real Growth, PPP and other indicators to understand the Business Cycle Trend

and Describe in holistic way. Finally, we try to plot and represent with graph and other

communication tools.
 Accumulated Data

GDP

Real GDP growth (%)

6.00%

4.70%
4.40%
5.00%

3.90%
3.60%
3.40%
4.00%
2.90%

2.80%
2.60%
2.50%

2.40%

2.40%
2.40%
2.30%

2.30%
2.10%

2.10%
2.00%

2.00%
3.00%
1.80%

1.80%
1.60%

1.60%

1.60%
1.50%

1.40%
1.20%
1.10%

1.10%

1.10%
1.10%
1.00%

2.00%

0.90%
0.80%

0.60%
0.20%

0.20%
1.00%

0.00%
0 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
98 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
-1.00%1
-0.60%

-2.00%

-3.00%

-2.90%
-4.00%

GDP growth

The graph indicates the GDP of France from 1980 to 2017. It is clearly shows that
the GDP rates are decrease. In 2019, GDP of France goes down. It market a slight
decline in GDP compared to the previous year. Due to some economic crisis GDP
decrease in 2009.
Inflation

13.30% Inflation rate in percent

13.10%

12.00%
14.00%

12.00%
9.50%

10.00%
7.70%

6.60%
8.00%
5.80%

6.00%
3.40%
3.30%

3.20%
2.70%
2.50%

2.50%

2.30%

2.30%
4.00%
2.20%

2.20%

2.20%
2.10%

1.90%

1.90%
1.90%
1.80%

1.80%
1.80%
1.70%

1.70%
1.60%
1.30%

1.20%
1.00%
0.70%
0.60%

0.60%
0.30%

0.30%
2.00%

0.10%

0.10%
0.00%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20

Inflation rate

Industry

The leading industrial sectors in France are telecommunications (including communication

satellites), aerospace and defense, ship building (naval and specialist ships), pharmaceuticals,
construction and civil engineering, chemicals, textiles, and automobile production. Research and
development spending is also high in France at 2.26% of GDP, the fourth-highest in the OECD.

Energy

France is the world-leading country in nuclear energy, home of global energy giants Areva, EDF
and GDF Suez: nuclear power now accounts for about 78% of the country's electricity
production, up from only 8% in 1973, 24% in 1980, and 75% in 1990. Nuclear waste is stored on
site at reprocessing facilities. Due to its heavy investment in nuclear power, France is the
smallest emitter of carbon dioxide among the seven most industrialized countries in the world.

Agriculture

France is the world's sixth largest agricultural producer and EU's leading agricultural power,
accounting for about one-third of all agricultural land within the EU. Northern France is
characterized by large wheat farms. Dairy products, pork, poultry, and apple production are
concentrated in the western region. Beef production is located in central France, while the
production of fruits, vegetables, and wine ranges from central to southern France. France is a
large producer of many agricultural products and is currently expanding its forestry and fishery
industries. As the world's second-largest agricultural exporter, France ranks just after the United
States. The destination of 49% of its exports is other EU members states. France also provides
agricultural exports to many poor African countries which face serious food shortages. Wheat,
beef, pork, poultry, and dairy products are the principal exports.

Exports from the United States face stiff competition from domestic production, other EU
member states, and third-world countries in France. US agricultural exports to France, totaling
some $600 million annually, consist primarily of soybeans and soybean products, feeds and
fodders, seafood, and consumer products, especially snack foods and nuts. French exports to the
United States are much more high-value products such as its cheese, processed products and its
wine. The French agricultural sector receives almost €11 billion in EU subsidies. France's
competitive advantage is mostly linked to the high quality and global renown of its produce, such
as cheese and wine.

Tourism

France is the most popular tourist destination with more than 83.7 million foreign tourists in
2014, ahead of Spain (58.5 million in 2006) and the United States (51.1 million in 2006). This
figure excludes people staying less than 24 hours in France, such as northern Europeans crossing
France on their way to Spain or Italy during the summer.

Economic Policy

Since the 1980s, the government of France has favored capitalism and market-orientated
policies. The government has either partially or fully privatized many national industries,
including Air France, France Telecom and Renault, and today France’s leaders remain
committed to capitalism. However, the French government still plays a role in certain key
national sectors, such as agriculture, and it will intervene in the market to moderate certain social
economic inequalities.

Since the economic crisis, the government of France has had to re-evaluate this aspect of its
economic policy. Despite recent changes to France’s policies, greater reform may be needed to
kick start the economy. France is ranked 141 out of 144 countries on “hiring and firing practices”
according to the World Economic Forum’s Global Competitiveness Report and many critics
advocate for labor market reform. Further, France’s housing market is under stress due to high
prices and low market activity. Notably, French economic policy decisions are influenced by
common European Union policies and targets, as well as France’s membership in supranational
organizations such as WTO and the G7.
Fiscal Policy

In recent decades, France, along with many other European countries, has experienced a rise in
the size of government and an accumulation of public debt. Since the economic crisis, the
government has had to face new economic realities and has used fiscal policy as a tool to
stimulate the economy and reduce the budget deficit. Former President Sarkozy implemented
austerity measures, principally budget cuts and tax increases, to attempt to reinvigorate the
French economy and reduce the country’s budget deficit. However, current President Hollande
was elected on a campaign to eliminate the budget deficit through higher taxes on the wealthy
while maintaining government spending. After missing deficit targets and with the French
economy still experiencing weak growth rates, Hollande had to reevaluate his fiscal policy and in
2014 he pledged to cut government spending by EUR 50 billion over the next three years.

Monetary Policy

The Banque de France is the central bank of France and is responsible for the implementation of
France’s monetary policy. Since 1999, France has followed the common monetary policy of the
Eurozone set by the European Central Bank (ECB). The primary objective of the ECB’s
monetary policy is to maintain price stability within the Eurozone. Today, the Banque de France
is linked to the ECB and implements the interest rate policy set by the European System of
Central Banks.

The ECB is committed to keeping inflation below, but close to, 2% over the medium term. In
order to achieve this goal, the ECB uses a set of monetary policy instruments including setting
the key deposit rate and benchmark refinancing rate. Since the recent economic crisis, inflation
has fallen below 1%, into the “danger zone”, causing the ECB to take unprecedented monetary
policy actions. In 2014, the ECB cut the main refinancing rate to a record low of 0.15% and
became the first major central bank to ever adopt a negative deposit rate.

Formerly, unlike the Federal Reserve, the ECB did not typically buy bonds outright. Instead, the
ECB used reverse transactions, repurchase agreements or collateralized loans, to manipulate the
money supply. However, during the recent sovereign-debt crisis, the ECB purchased bonds
issued by feeble Eurozone countries to stimulate liquidity.
France’s Exchange Rate Policy

Since the adoption of the Euro, France’s exchange rate policy has been determined by the ECB.
The Eurozone members decided in 1998 to adopt a flexible exchange rate regime, allowing the
euro to float freely. By allowing the euro to float, the ECB targets interest rates rather than
exchange rates and does not intervene in foreign exchange markets.

The euro is the world’s second largest reserve currency after the US dollar and is used as a peg
for several countries outside of the Eurozone. Additionally, the Danish krone and the Lithuanian
litas are linked to the euro through the European Exchange Rate Mechanism II.

Since its introduction, the USD/euro exchange rate has floated within a range of 0.90 USD per
euro (annual average over period) and 1.47 USD per euro (annual average over period). After
reaching its peak in 2008, the euro depreciated amid fears of a potential Eurozone breakup
caused by the Greek sovereign debt crisis. While the euro has gained ground since then,
uncertainty regarding the evolution of the debt crisis continues to impact the rate.
Unemployment

Unemployment

10.90%
10.80%
10.70%

10.70%
10.50%

10.40%

10.40%
12.00%
10.30%

10.30%
10.30%

10.00%
9.80%
9.40%

9.40%
9.30%
9.20%

9.20%

9.20%
9.10%
8.90%

8.90%
8.80%

8.80%

8.80%
8.70%

8.70%

10.00%
8.60%
8.50%

8.50%

8.50%
8.40%

8.30%
8.10%

8.00%
7.50%
7.40%

7.40%

8.00%
6.20%

6.00%

4.00%

2.00%

0.00%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20

Unemployment

Employment rates remain low in international comparison, despite a recent increase. The low-
skilled, young and older workers have particularly low employment rates. The low level of
qualification of part of the labor force combined with tight labour market regulations has reduced
access to employment. Support and training measures still need strengthening, particularly for
the long-term unemployed, low-skilled and young people, as foreseen in the Youth Guarantee
programme, the Skill Investment Plan and the antipoverty strategy. The government is
continuing to lower labour cost and increasing wage top-ups for low-wage earners which will
help improve their situation on the labour market and their disposable income.

France’s economic performance has long been hampered by an inflexible labor market and high
structural unemployment. These reflect entrenched rigidities, including: (i) inability of the
education and training systems to match quickly and well individuals’ skills with changing
business needs, which creates imbalances between the demand and supply of labor; (ii) elevated
minimum wages relative to median wages, which hinder access to work for the young and the
low skilled; and (iii) limited incentives to work, reflected in relatively generous unemployment
benefits and a still elevated labor tax wedge relative to peers, even after the recent tax reforms.
Some socio-economic groups have been particularly affected by these rigidities, notably the
youth, the low-skilled and non-EU immigrants, which consequently exhibit higher
unemployment rates and higher incidence of poverty compared to other groups.

Growth accelerated in 2017, reaching 2.3 percent, 1.2 percentage points higher than in 2016

Private investment was a key driver of growth, supported by an improved business climate,
strong bank credit growth (5.6 percent) and corporate bond issuance, boosted by the ECB’s
accommodative policy. Exports performed well (growth of 4.5 percent), buoyed by increased
global demand and a recovery of tourism. However, the net impact of external demand on
growth was modest, as imports also accelerated (growth of 4 percent). Labor market conditions
improved, supporting private consumption. After hovering around 10 percent for several years,
the headline unemployment rate declined to just over 9 percent in 2018, reflecting a pickup in
private sector employment (growth 1 percent in 2018). Wages have grown in line with the euro-
area average. CPI Inflation has been on the rise, reaching 2.1 percent at end-June 2018, reflecting
an acceleration of energy, food, service, and tobacco prices. Core inflation has also increased
slightly (1 percent in May 2018), although this reflects in part the effects of higher green taxes.
The fiscal deficit fell to 2.6 percent of GDP in 2017, below the EDP limit of 3 percent for the
first time since 2007, largely driven by stronger revenues associated with the better growth and
employment outcomes.
 Discussion

Private debt

At around 180 percent of GDP, gross private sector debt is high relative to peers. This is largely
due to high and rising corporate debt, which has reached 130 percent of GDP (unconsolidated),
reflecting a combination of bank credit, corporate bond issuance, and intercompany loans . While
consolidated corporate debt is lower (close to 80 percent of GDP), the debt burden is
concentrated in a few network sectors (e.g. transportation, utilities), and among relatively few
large firms. Should interest rates normalize faster than expected, indebted corporate and sectors
could face an increasing debt-service burden, which could have repercussions across the
economy, weigh on investment, and affect banks’ balance sheets, further constraining growth
(although firms have also increased liquid assets, which can provide a cushion).

Large fiscal imbalances persist

France’s persistent fiscal deficits have been driven by high spending growth, especially related to
social benefits, transfers, and local governments. As a result, at 56.4 percent of GDP at end-
2017, France’s public spending was the highest in Europe. Revenue-based consolidation efforts
undertaken during the recent global crisis reached a limit and were subsequently followed by tax
relief legislated with the 2018 budget. More recent efforts aimed at expenditure-based fiscal
consolidation since 2014 relied mainly on across-the-board nominal spending growth restraint
(e.g. legislated spending freezes) and have not delivered much real spending reduction, because
of weak price growth. Consequently, public debt continued to rise, reaching 97 percent of GDP
at end-2017, among the highest in Europe.

XSL Years GDP Unemployment

1 1980-1985 Recession Increase
2 1986-1990 Expention Increase
3 1991-1995 Recession Increase
4 1996-2000 Expention Decrease
5 2001-2005 Recession Decrease
6 2006-2010 Recession Increase
7 2011-2015 Expention Decrease

Recommendation
 Lowering structural unemployment and improving opportunities for disadvantaged
groups by finalizing and implementing the reform overhauling the apprenticeship and
professional-training systems. The authorities should stand ready to reinforce recent
labor-market reforms with additional measures if needed to ensure that wages evolve in
line with productivity, the unemployment system provides adequate incentives to work,
and training can reach those most in need, especially the youth.
 Improving the business environment and strengthening competition in service sectors by
continuing to reduce the administrative burden, supporting innovation and start-ups, and
taking additional steps to further liberalize regulated professions.
 Putting public debt on a sustained downward path through spending reforms at all levels
of government, including social benefits, the public administration, pensions, healthcare,
and local governments. In view of the sizeable effort needed to attain the authorities’
medium-term objectives, the authorities should specify early on, starting with the 2019
budget, the spending reforms that can help achieve their fiscal goals.

 Further supporting the financial sector’s resilience by implementing ongoing

international regulatory changes and continuing to actively use macro prudential policies.

 France should capitalize on this reform agenda and take further measures to improve
public spending efficiency, increase high-quality jobs and ensure that the economy of the
future works for everyone.

 France should flexibility in the labour market, which encourages breaks between
employments. 

 The transport sector accounts for a large share of pollution and emission reductions have
been slow, while urban pollution remains high in some cities. Infrastructure planning
needs to better reflect health and environmental costs and be consistent with
government's targets for reducing greenhouse gas emissions.

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