Fears of an economic relapse
The budget minister's reason for twisting reality to such a degree was to try and convince public opinion that France is recovering from the economic crisis, even though the country is actually on the verge of what could be described as a collective nervous collapse. In fact, his reference to an acceleration in growth represents only an infinitesimal extract from INSEE's October review.
The figure Baroin revealed appears in the report on page 4 of the English version and page 7 in the French document (see below). With a growth rate of 0.4% in Gross Domestic Product (GDP) in the third and fourth quarters of this year, the French economy should indeed show growth of 1.6% for the full year 2010. This is 0.2 point more than INSEE had forecast in its Conjuncture in France report in June, and 0.1 point above the hypothesis used by the government for its new finance bill.
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But a variation of 0.1 or 0.2 point is no more than a hair's breadth. This figure says little about the underlying trends affecting the French economy. And with the current year nearly over, the real debate now one which is currently dividing economists concerns a slightly longer-term horizon: is there a risk that France will suffer an economic relapse in 2011?
Numerous factors lend support to such a pessimistic forecast. Firstly, it is now clear that following the very steep recession of 2009, when the economy shrank by 2.5%, there was some respite for purely technical reasons, in particular caused by companies rebuilding stocks. These are inevitably temporary effects, and which will no longer play a role in 2011.
But worse than that, the finance bill for 2011, which the government has just unveiled, puts in place an austerity policy with a swathe of tax increases and reductions in public spending. This highly restrictive policy is bound to weigh on growth and may even choke it off. This is precisely what a large number of economists fear, including Joseph Stiglitz, the former chief economist of the World Bank and winner of the Nobel Prize for economics in 2001, as he explained in a recent interview with Mediapart.
The risk is increased by the fact that the American economy is currently slowing. Because of this, US demand for goods from Europe in general, and France in particular, is likely to take a dive. So there are no grounds for euphoria. Whatever the government says, the outlook is rather worrying, and - at least in part - because of its policies.
INSEE does not say this in so many words. In its habitual formal language, the institute's publication of figures is a careful exercise that does not judge government policy. In addition, the report simply adjusts economic forecasts for 2010, and does not aim to give forecasts for 2011. Nevertheless, one can read between the lines. In French the report was enigmatically entitled The West Wind, but its English title, Clouds Gathering in the West, is somewhat clearer in presaging difficult times to come.
There is a simple reason behind this. INSEE's experts also conclude that: "the global recovery is fragile and is currently showing signs of flagging." In particular, it says: "in the United States, the economic slowdown is marked." The inevitable consequence of this is that "By the end of the year, the euro zone will likely be affected by the American slowdown, via export outlets." The message may be subliminal but it is no less clear: the underlying trends for 2011 are worrying.
INSEE is not the only body to issue such a warning. All the major forecasting institutes are also issuing warnings, to varying degrees: contrary to what the government claims, the French economy is not in a phase of accelerating recovery. After estimating 2010 growth at 1.5%, the government is banking on 2% for 2011, although the consensus of private forecasting institutes for 2011 is only 1.5%. Of these, Natixis and Euler-Hermès forecast only 1.1% growth, while L'Expansion foresees 1%. It is evident that these growth forecasts are too weak to reduce unemployment, revitalise employment and absorb all the various public deficits. It amounts to an ominous bulletin.