Chamber in Review
French Economy Shows Resilience
French Economy Shows Resilience<br/>法國展現經濟韌力

By the end of 2021, the French economy had returned to pre-pandemic levels as the Covid threat receded and businesses resumed normal operations. As Oliver Vigna, Deputy CEO of Paris Europlace, explained at a Chamber webinar on 24 May, the recovery was also thanks to longer term efforts by the French government.  

“What is crucial to bear in mind is that the structural reforms over the past decade are now showing concrete results,” he said. 

Policies introduced in recent years include lower tax rates for corporates and investors, and changes to rules on hiring and firing, which have made the landscape much more business-friendly.  

Retail sales are dynamic: although not as high as in the United States, they have proved to be more resilient than Germany or the United Kingdom. Also, French households have high rates of savings. These factors should help France cope with looming challenges in the external environment including the Ukraine conflict and supply chain issues.

“We remain confident there is still a cushion and pent-up demand in France to avoid the risk of a strong negative effect on economic activity,” Vigna said.

French consumers also benefit from a tariff shield that has limited the rise in energy prices and helped to keep inflation under control. 

“The inflation rate is less high in France than in other Eurozone economies, which will protect the purchasing power of French households and enable spending to continue,” he said. 

Worker efficiency is improving, and the cost of labour is not too high, Vigna added: “Contrary to what many may think, the real minimum wage in France is actually lower than in other E.U. countries including the U.K. and Germany.”

Speaking from Singapore, Francois Haas, Chief Representative for Asia-Pacific at the Banque de France Asia Office, then discussed some of the fiscal and monetary challenges that France is facing, including a debt-to-GDP ratio of 113% – among the highest in the E.U. This issue dates back to the Global Financial Crisis of 2008, but the “whatever it takes” pandemic measures have added to government debt. 

France is also facing manpower challenges, with around 50% of corporations reporting difficulty recruiting the right staff, while at the same time, youth unemployment remains high, at 16%. This highlights a need to improve education to better serve the economy, Haas said. Another pressing issue is reform of the pensions system, which is a “fraught debate” in the country, he said. 

The French inflation rate of 4.5% is relatively low, however, Haas pointed out that it was still a concern. 

“Inflation is lower in France than in most other countries, but it has still risen rapidly, and 4.5% is the highest since 1985. The change in magnitude is significant.”

Like many other economies, France is now starting to normalize its monetary policy by ending the purchase of assets, and paving the way for interest rate rises. “The era of low interest rates is definitely behind us, and we are entering a new situation,” he said. 

As Haas noted, many of the current economic issues are not unique to France, and he suggested that more coordination on financial matters within the E.U. would benefit the whole bloc. The E.U.’s Stability and Growth Pact, which aims to help member states coordinate their fiscal policies, has been suspended since 2020. However, Haas said this pact would benefit from reform to make it less complex. 

Another suggestion he made was the development of an E.U. capital market. This would allow the significant pots of savings currently scattered across Europe to be used to fund the investment needed in the E.U. in the years to come. 

More cooperation on financial matters would also help the bloc to cope with unexpected crises like Covid and the Ukraine conflict, he added. 

In the Q&A session, Vigna shared some of the benefits of Paris as a financial hub for the E.U. after Brexit, including the city’s concentration of global corporates, high quality labour force and accessible location.

Haas added that digital advances mean that financial activities no longer need to be in the same place, so different cities can play different roles, for example with Dublin hosting back-office staff and stock trading taking place in Amsterdam. 


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