The French economy has been hit strongly by worldwide economic recession and crisis in the Euro area. Though this crisis situation has been well managed in France but the problem of unemployment looms large. The French and Euro economies are strongly interconnected. French economy is characterized by significant imbalances in public finances, external debt and high unemployment. France is the country that witnessed the weakest growth in the real per capita GDP over the past 20 years though it is one of the few countries where a low level of income inequality prevails.
The improvement in economic outlook for 2013 relies on efficient spending by the government and implementation of some vital economic reforms. The reforms must focus on the means to reduce the rate of unemployment and restoring firms competitiveness. The adoption of National Pact for Growth, Competitiveness, and Employment signals some positive outlook for 2013.
Short Term Growth perspectives
In the short term, growth is expected to remain weak and there are highly likely chances of unemployment to continue rising further. This problem of unemployment earlier affected only the youths, particularly in 2008-2009 but now this problem of unemployment looms large for people of all age groups.Government of France has estimated a growth of 0.8% in 2013 and 2% in 2014, the government deficit would decline to 3% of GDP in 2013 and 2.2% in 2014. The structural deficit forecasted by the OECD would be near to 0 at the end of 2014.
The banks of France suffered a steep fall in cross border lending. The French banks remain heavily dependent on wholesale funding. Refinancing of large amount of debt that is maturing in 2013-2014 might turn out to be difficult.
The government spending is likely to suffer a vigorous fall.The strategy of government for the next fiscal year consists of increasing tax rates, targeting mainly large business houses and high net worth individuals along with fall in the public expenditure.According to the 2012-2017 multi-year budget, the tax revenue-to-GDP ratio would increase from 44.9% that prevailed in the year 2012 to 46.3% in 2013 and would start decreasing in 2015.
Poor export performance
The trade balance of France has been worsening steadily from the past 15 years. The reason for the weakened industrial performance can be attributed to structural weakness on the supply side. The jeopardized structure of taxation, labor markets and regulatory restrictions are causes of structural weaknesses.
Reinforce economy’s rate of growth and restore the firms competitiveness.
• Government spending should be minimized and laxity in taxing labor and business income should be pursued.
• Lay off methods should be simplified and legal procedures should be made more effective.
• Social security contributions of employers should be higher on temporary contracts than permanent ones.
• Product market competition should be emphasized.
Fortify public finances by minimizing spending.
• Existing mechanism of public spending needs to be reviewed, inefficient subsidies and grants offered should be phased out.
• Parameters of the pension system needs to be changed and adjusted as according to the needs of the present scenario.
• Selling of generic medicines should be encouraged and cost of drugs should be reduced.
Improve the effectiveness of tax and transfer system
• The stability of the tax and transfer system needs to be bolstered.
• Taxation of dividend needs to be streamlined.
• Tax bases should be broadened.
• Universal-point based system needs to be adopted.
• RSA system needs to be adopted instead of long term unemployment benefits.
Improvement in economic situation of young population
• Build such schemes which aim at helping young population in finding job.
• The discreation and autonomy of principals of primary school must be increased.
• Allocation of additional government expenditure towards’priority education’ (supporting the disadvantaged).
• Providing students education loans with income-contingent repayment.
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Source: World Bank
|Last Updated on : 21th February 2015||Next Update : February 2016|