France’s economic recovery will remain modest this year as businesses wait on the sidelines before investing, despite strong boosts from a weaker euro and lower oil prices, reports from economic forecasters showed Thursday, reports The Wall Street Journal.
France’s national statistics bureau, INSEE, said businesses are unlikely to plunge into fresh investment that would reverse years of decline, even as their margins improve thanks to lower oil prices and tax breaks introduced by President François Hollande. While INSEE tweaked its growth forecast up slightly for the first quarter of the year, it said this was due to a one-off boost as energy production recovers from a dip at the end of 2014.
“Business leaders are likely to continue with their wait-and-see attitude and will be little-inclined to accelerate their investment significantly,” INSEE said.
In a separate report Thursday, the Organization for Economic Co-operation and Development praised Mr. Hollande’s tax cuts for employers, but said the country needs to quickly carry out more ambitious economic overhauls—particularly of labor laws—to raise potential growth and confidence.
“The wait-and-see attitude of households and firms could well continue, given uncertainty about the success of structural policies and euro area growth,” the OECD said.
The economic reports put pressure on Mr. Hollande’s government at a difficult moment for the Socialist leader. His party suffered a major setback in local elections last Sunday, losing control of almost half of the local jurisdictions it previously held, prompting fringes of the Socialist majority at the National Assembly to reignite their call for a change in economic policy. The dissidents have regularly abstained from voting key bills in Parliament and want Mr. Hollande to reverse pro-business policies, planned public-spending cuts and other economic overhauls—the very policies the OECD says France must extend to boost confidence and growth.
“I’m aware that implementing reforms is a vast, complex and politically grueling,” the head of the OECD Ángel Gurria said. “At the OECD we are impatient to see France become a growth motor again, for Europe and the world.”
Ratings firm Moody’s Investors Service also issued a report on France Thursday, warning that French governments have repeatedly shown they are unable to deliver fiscal and economic overhauls to avoid the deterioration in the country’s weak growth potential.