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Executive Summary

Frances economy is in a post-recession rut with rising unemployment and weak GDP growth that has
stagnated for more than two years. High unemployment and lack of meaningful reforms has contributed to
President Francois Hollande's low approval rating of 12 percent the lowest rating of any French president
on record.
This presentation provides background on the economic difficulties facing France, regulatory concerns, and
policy proposals being considered by the French government. Key highlights are:

Despite weathering the crisis better than other countries, France's GDP growth has virtually
stalled in 2012 and 2013 and unemployment has increased to nearly 11 percent. In 2014, France's
GDP is projected to grow only 0.9 percent, while the OECD average is forecasted to be 2.2 percent.

Political support for President Hollande has evaporated with an approval rating of 12 percent.
Despite initial efforts towards improving the business climate and the appointment of the more businessfriendly Economic Minister Emmanuel Macron, France has yet to see real reform.

French businesses face a comparatively higher regulatory burden than other global economic
leaders. Tax rates and trade costs for French businesses also show that the cost of conducting business
in France remains comparatively high. Although these alone do not account for its recent economic
difficulties, improving the business climate could improve growth of domestic firms and attract FDI.

However, Frances difficulties are part of a pan-Eurozone slowdown. Since Maastricht, Frances
GDP per capita has grown at similar rates as Germany but below that of the U.K. and the U.S. Overall,
France's contribution to global GDP is now four percent, down from five percent in 1992.
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Despite Weathering The Crisis Better Than Some,


France's Economy Has Shown Stagnant Growth
GDP Growth (Annual %)

FRA

GBR

USA

DEU

5
4

GDP Growth In 2014

3
2

Percent

1
0
-1

2007

2008

2009

2010

2011

2012

2013

France is expected to
achieve only 0.9%
GDP growth in 2014,
compared with 1.9%
projected for Germany
and 2.2% projected
for the OECD average

-2
-3
-4
-5
-6
World Bank Data, GDP Growth (Annual %), 2004-2013
OECD, GDP Growth (Annual %), 2014

Unlike Others, The French Unemployment Rate Has


Continued To Increase Since The Recession
Unemployment (% Of Total Labor Force)

Youth Spotlight

11
FRA

10

Percent

9
8
7
6

GBR
USA

DEU

4
2009

2010

2011

2012

2013

OECD, Unemployment, Total (% Of Total Labor Force), Quarterly, 2009-2014;


OECD, Unemployment, Youth Total (% Total Labor Force 15-24), 2008, 2013

France and Germany's


unemployment gap is
particularly apparent
with regards to youth
unemployment, which
reached 23.9% in
France in 2013, versus
7.9% in Germany
Frances youth
unemployment was
comparatively high
even before the
recession, at 18.6% in
France and 10.6% in
Germany in 2008

2014

However, France's Growth Is In Line With The Broader


Eurozone, While Unemployment Is Still Relatively High
2013 Eurozone GDP Growth (Annual %)

4.1
0.2

0.3

0.4

0.5

0.8

0.9

2.0

2.4

Weak growth is a panEurozone problem that


has slowed growth for all
but some of the groups
smallest economies.

-0.3
-1.4 -1.4 -1.2 -1.1 -0.8
-3.9

LVA

MLT

LUX

SVK

EST

DEU

AUT

FRA

BEL

IRL

NLD

SVN

ESP

PRT

FIN

GRC

CYP

-6.0

MLT

LUX

NLD

FIN

BEL

EST

27

GRC

DEU

26

ESP

AUT

IMF World Economic Outlook Database, April 2014

16

PRT

16

CYP

14

SVK

IRL

12

LVA

11

FRA

10

13

SVN

Frances 2013 GDP


growth remains in line
with the largest
Eurozone economies.

Unemployment

2013 Eurozone Unemployment (% Total Labor Force)

GDP

Frances greater
economic challenge lies
in its unemployment rate,
which is more closely
aligned with the smaller,
more volatile economies
of the Eurozone.

Longer-Term, Frances Share Of Global GDP Has


Depreciated At A Slower Pace Than Germanys
With longer-term GDP per capita growth
in line with Germany, but below the U.S.
and UK

France's contribution to global GDP has


depreciated less than Germany's but more
than UK and the U.S

GDP Per Capita, Current $US, Thousands,


1992-2013

Percent Share Of Global GDP, Current $US


1992-2013

+108%
53

-14%
+105%

+78%

39

41

25
19

23

+76%
45

1992
2013

26
22

26
-24%

USA

GBR

FRA

DEU

USA

World Bank Data, GDP Per Capita (Current $US), 1992-2013; GDP (Current $US), 1992-2013

GBR

-33%

FRA

-41%

8
5

DEU
5

This Year The Gov't Has Restructured Twice And


Hollande's Approval Rating Has Fallen To New Lows
Weak Outlook
The French government
announced in August
2014 that it would not
meet 2015 deficit
reduction commitments to
the European Union.

President Hollande
replaced Frances
Economic Minister Arnaud
Montebourg with the more
center-right Emmanuel
Macron last August.

S&P cut France's outlook


from stable to negative in
October 2014. S&P
maintains Frances AA/AA1+ rating, which was
last downgraded in
November 2013.

Hollande (IFOP); Mitterand (IFOP); Chirac (TNS-Sofres); Sarkozy (Viavoice)

Lowest Approval Rating Of


Presidency (Percent)
Chirac Mitterand Hollande
(2005) (1991) (2014)

Frances economic woes


have forced President
Francois Hollande to
restructure the
government twice during
2014.

Low Approval

Sarkozy
(2011)

Gov't Restructuring

12

22

24

30
6

Frances Businesses Are Under Greater Regulatory


Pressure, Contributing To Slow Economic Growth
Ease of Doing Business Index 2013 (1 =
Most Business Friendly Regulations)

38

FRA

21

DEU

10

GBR

USA

Frances Regulatory Environment


Burden On Businesses:
When ranked on the World Banks Ease
of Doing Business Index, Frances
regulatory environment is ranked behind
other global competitors.
Ease Of Doing Business Index
The Ease of Doing Business Index
measures the efficiency of an economys
regulation by examining 11 topic areas,
including access to credit, ease of
starting a business, permitting, paying
taxes, protecting investors, and others.

World Bank Data, Ease Of Doing Business Index, 2013

The French Labor Tax Rate Is Higher Than Many Other


Countries' Total Tax Rate
Total Tax As A Percent Of Total Commercial
Profits (%), 2013
Other
65%
Labor Tax
13%

49%

46%
34%

28%
36%

52%

23%
22%

FRA

DEU

10%

11%

USA

GBR

Frances Tax Burden


In 2014, President Hollande
offered businesses a 30
billion payroll tax cut in an
effort to provide relief from
Frances labor tax. The cut is
expected to reduce average
total wage bills for employers
by 5.4%.
Frances government has
already provided businesses
with 20 billion in tax breaks
since the Great Recession.

World Bank Data, Labor Tax And Contributions (% Of Commercial Profits); Total Tax Rate (% Of Commercial Profits), 2013

French Businesses Face Higher Costs And Trade At A


Slower Rate Than The U.S., U.K., And Germany
Time To Import 2014 (Days)
Cost To Export 2014 ($ Per
Container)

11

FRA
7

DEU
FRA

1,335

USA
USA

GBR
5

1,090
Time To Export 2014 (Days)

GBR

1,005
10

FRA
DEU

905

DEU
8

GBR
USA

World Bank Data, Cost To Import, Export ($ Per Container), 2014; Time To Import, Export (Days), 2006, 2014

France Has Earned A Reputation For Overregulation


And Hostility Towards Foreign Direct Investment
FDI To France, 2004-2013, In Billions Of US Dollars
-95%

96

100
90

85

80

OECD, Foreign Direct Investment, 2004-2013

64

60
50
40

34

33

30

39
25

24

20
10

5
2013

2012

2011

2010

2009

2008

2005

0
2004

Culture Of Protectionism: Cases


such as Frances intervention in the
ultimately successful acquisition of
Alstom by GE have shown how
Frances protectionism risks
reducing foreign investment

72

70
$ Billions

Frances 49ers: Effects of


overregulation can be seen in the
prevalence of companies with 49
employees, a phenomenon that
has occurred as a result of the
regulatory changes businesses
must make after reaching a size of
50 employees

2007

Layered Bureaucracy: Frances


bureaucracy includes multiple state
and local governing bodies that
add to the volume of regulation

2006

Reputation For Overregulation

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Economy Minister Emmanuel Macrons Prescription


For Frances Ailing Economy
Initiative
Responsibility Pact

Description
Payroll tax cut for businesses
Although not Economy Minister at the time,
Macron played a heavy hand in enacting a
30 billion tax cut for businesses in
exchange for hiring pledges

Sunday Trading,
Industry Specific
Deregulation

Unemployment
Benefits, 35 Hour
Work Week

Macrons first round of reforms seek to lift


restrictions on business operating hours on
Sundays, allow further competition in
intercity bus transportation, and deregulate
professions in the health and judiciary
sectors
Macron has said he would support
reexamining Frances 35-hour work week
and unemployment benefit system, both
staples of Frances social welfare state
Despite rhetoric, Macron has yet to initiate
action on these topics

Our Take
Macrons arrival has brought
with it little in the way of real
policy change and more rhetoric
on whats needed to turn around
Frances economy.
His strong language has served
primarily thus far as a signal to
Germany and EU leaders that
real reform is on the way.
That being said, there is more
political opportunity for reforms
than in years past. Macrons
challenge lies in balancing
French ideals of a strong welfare
state while working to improve
Frances business climate.
For more details the OECD
published a report here.
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