Emmanuel Macron stay ahead in the polls as France prepares to choose its next president, even if a second term is not the formality it seemed a few months ago. As the world goes through turbulent times following Russia’s invasion of Ukraine and the fallout from the COVID pandemic, the state of the French economy and its future prospects are likely to play a role. a key role in the election.
So how has France done recently? The numbers suggest it has performed well compared to other major economies around the world, and surely much better than initially expected when the pandemic hit. Macron appears to have wisely invested public funds stemming largely from rising debt, trying to make the business environment more attractive to existing and new businesses – notably those of technology.
GDP growth of the ten major economies, 2016-21
The chart below compares the evolution of French GDP with some other demand-related indicators, ranging from household consumption to foreign demand for French goods. You can see that the GDP growth rate was back to pre-COVID times in the fourth quarter of 2021, implying that the economy has been growing significantly. GDP growth for the first half of 2022 is expected to be 3.2%, following annual growth of 7% in 2021.
French GDP and main components of demand, 2019-21
France is a leading exporter pharmaceuticals, military equipment and cars, among others, but exports are the only indicator in the chart that is still below pre-COVID numbers. It is also likely to be even more affected by EU sanctions against Russia, given that Russia is buying just over 1% of French products.
This damage will be somewhat offset by growth get out of globalization, which is likely to further encourage French multinationals to develop their activities in France itself. That said, France already matters more than it exports, and with the French trade deficit expanding recently, imports become even more dominant. This is something the next president may need to address, as self-sufficiency is increasingly becoming a virtue.
Two other economic indicators are also particularly important for understanding France under Macron: unemployment and inflation. Both are relatively favorable.
France’s unemployment rate fell to 7.4% in the fourth quarter of 2021, a level not seen since 2008. This reflects Macron’s reforms during his first term, among the Most important who cut corporation tax from 33.3% to 25% and pushed for changes to the French labor code to make it easier for companies to lay off workers. Labor reforms have increased the precariousness of workers’ jobs, but they have also made the labor market more dynamic by encouraging companies to hire.
Bruno Le Maire, Minister of the Economy hailed as historic the fact that almost 1 million companies were created in France in 2021. Others pointed out that the majority of them were in fact micro-enterprises with only one or very few employees. Either way, people’s willingness to start new businesses has been widely seen as an indicator of the vitality of the economy. Macron is touting this as one of his biggest victories in his first term, and it could be one of the factors that will push him over the line on April 24.
Unemployment rate 2019-22
French inflation rose to 4.5% in March, and the chart below shows a worrying upward trend since last summer. Having said that, it stays one of the lowest rates among European countries – with Germany at 7.3% and Spain at 9.8%, for example. One reason is that France gets most of its electricity from its nuclear power plant fleet, so it has been relatively insulated from the oil and gas price hikes that have caused problems elsewhere.
Let’s also not forget that, like many other countries that have responded to the pandemic, France public debt/GDP ratio increased: from 98% in 2019 to 116% in 2021. Higher inflation is a way to reduce this growing debt burden, even if the levels of price increases that France and other countries are currently experiencing will far beyond what central bankers would have liked.
Inflation also looks likely to get worse before it gets better, also depending on how the war in Ukraine unfolds. Dealing with this problem is going to be another challenge for whoever leads France for the next five years. If that turns out to be Macron, the overhaul of the French economy under his leadership could well be seen as one of the main reasons.