The French National Institute of Statistics and Economic Studies, INSEE, last week published its economic forecast for the first half of 2013, predicting France will remain on the edge of recession with zero growth, ever-rising unemployment, a collapse of purchasing power and consumption in tatters. Mediapart's economics and finance specialist Laurent Mauduit argues here that the INSEE study provides a damning appraisal of the French socialist government’s austerity policies and its obedience to the fiscal compact.
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The French National Institute of Statistics and Economic Studies, INSEE, last week published its economic forecast for the first half of 2013, entitled ‘Conjoncture in France, December 2012’. This latest edition of what is a regularly-produced outlook study indicates France will continue to teeter on the edge of recession while the country will pay an ever-harder price socially.
INSEE projects zero growth, a collapse of purchasing power and consumption in tatters, but it is above all the trend in the unemployment rate that is the most disturbing; this may reach 10.9% of the active population, including French overseas territories, by next June, just three decimal points short of the highest jobless level, topped in 1997, ever recorded in recent French history.
The INSEE study, published December 20th, paints an alarming picture of the failure of the French government’s economic policies, which are not only unable to turn around the economy but actually also threaten to deepen the crisis. While the government was well aware that INSEE’s forecasts would be bleak, they are in fact even worse than expected.
The first bad surprise concerns growth. France has remained in a state of near zero growth since the end of the first quarter of 2011, oscillating between slightly positive and slightly negative figures. This trend is set to continue during the first six months of 2013, with growth estimated by INSEE at 0.1% over both the first and second quarters, exactly the same as its estimation for the overall growth rate in 2012. It calculates that the growth overhang at the end of June 2013 will be 0.1%.
So it is then that the government is in the process of losing its first bet; this was that economic growth this year would be 0.3%, while it also based its 2013 budget, presented to parliament this autumn, on the calculation that growth in 2013 would reach 0.8%. For that to happen, set against the scenario presented by INSEE, the growth rate will have to suddenly jump during the third quarter to around 0.8% (from 0.1%), and then to a further 1.2% in the last quarter. That is quite simply unthinkable.
(Scroll down to read the 'General Outlook' section of INSEE's study 'Conjoncture in France')
The study represents a damning appraisal of the government’s austerity policies. To impose stark austerity measures upon a country in stagnation quite logically makes the situation even worse. At the same time, the government is in danger of shooting itself in the foot, for if growth falters more than is predicted, fiscal income will fall and its target of reducing the national deficit to below 3% of GDP in 2013, in obedience to the fiscal compact, won’t be met. Which, in turn, would lead to yet another austerity package, part of a never-ending process, a vicious circle in which deficit targets are never met.
Jobless rate leaps, purchasing power tumbles
INSEE reveals one of the most spectacular falls in purchasing power over recent years, even if this is not immediately apparent in the figures presented. In 2012, the purchasing power of gross household income fell by -0.2%, and INSEE predicts this will rise to a positive figure of 0.1% by the end of the first half of 2013. Put together, this means purchasing power will have averaged 0% over a period of 18 months. But in reality, the trend is much worse.
Because of the demographic evolution that has seen an increase in the number of households, which the study takes into account, it counter-balances this with other more detailed measurements. These reveal that per inhabitant, purchasing power will actually fall in 2013 by -0.7%, and per household it will tumble by -1.2%.
Concerning unemployment, INSEE notes in the study that during 2012 “despite the slight revival in activity in the third quarter of 2012, employment in the non-agricultural trade sectors has fallen sharply (by -42,000)”. It adds: “With the weakness of activity, the situation on the employment market will continue to deteriorate between now and mid-2013: the forecast ahead is that on average, 40,000 jobs will be lost during each quarter.”
As shown in the graph above, the unemployment rate has leapt since the second quarter of 2008, when it lay at 7.7%. INSEE’s forecast is that by the end of this month unemployment (including French overseas territories) could reach 10.5%, and top 10.9% by the end of June 2013. That would bring it dramatically close to the historic 11.2% it reached in 1997.
Enlargement : Illustration 2
As shown in the graph above, the unemployment rate has leapt since the second quarter of 2008, when it lay at 7.7%. INSEE’s forecast is that by the end of this month unemployment (including French overseas territories) could reach 10.5%, and top 10.9% by the end of June 2013. That would bring it dramatically close to the historic 11.2% it reached in 1997.
So just what is the government doing to counter this social disaster? Nothing, in short. Last month it announced a so-called “competitiveness shock” package of measures in favour of business, amounting to 20 billion euros-worth of tax breaks, but no “social shock” package is in sight. While the government argues that the vast sum accorded to business will have a positive effect on employment, there is room for doubt. No conditions were imposed for the tax breaks, and one can well imagine that they will serve to beef up the dividends paid to shareholders.
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- Laurent Mauduit is one of Mediapart's specialist writers on economics, finance and social affairs. Previously economics editor of French daily Libération, and a senior economics journalist and editorialist with Le Monde, he is a co-founder of Mediapart.
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English version: Graham Tearse