Economy of France

This article addresses the economy of present-day France. For historical information, see Economic history of France.

France is the sixth largest economy in the world in USD exchange-rate terms. With a GDP of 1.7 trillion euros (1.7×10¹² €; 2005 data), the seventh largest by purchasing power parity, it shows the lowest poverty rate amongst the large economies, the lowest income inequality rate and has some of the world's strongest social services (such as health care, education, retirement systems) and public service sectors (such as public transport and public security). According to World Bank and IMF figures, it is the third largest in Europe after Germany and the United Kingdom.

Background

GDP growth averaged 2% between 1994 and 1998, with 3% recorded in 2000. Like other continental economies, France's real GDP growth has been relatively weak, the unemployment rate is high, at nearly 9% (officially), and a rising trade deficit has characterised a malaise in the French economy since the global economic downturn in 2000. However, France's income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably (most notably in the United Kingdom and the United States). Moreover, France's poverty rate remains one of the lowest in the world, at 6% (compared to 15% in the UK and 18% in the US). Despite this, 10% of the people control 46% of the total patrimony (Euros 8 000 billions) .

Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate is the top priority of the French Government. In the 1990s, unemployment fell from 10% to 8.5%, although this rebounded to double digits because of the dot.com crash, but currently, unemployment is back under 10%. France joined 10 other European Union countries in adopting the euro as its currency in February 1999. Since then, monetary policy has been set by the European Central Bank in Frankfurt.

Dirigisme and decline of dirigisme

Following the Second World War, the Fifth Republic of France embarked on an ambitious and very successful programme of modernisation, under state impulse and coordination. This programme of dirigisme, mostly implemented by socialist governments, involved the state control of industry, such as transportation, energy and telecommunication infrastructures.

However, dirigisme came to be highly contested after 1981 when newly elected socialist president François Mitterrand called for increased governmental control in the economy, nationalising many industries and private banks. By 1983 with the initial bad economic results the government decided to renounce dirigisme and start the era of rigueur ("rigour") or corporatisation. As a result the government largely retreated from economic intervention; dirigisme has now essentially receded though some of its traits remain.

Despite significant liberalisation over the past 15 years, the government continues to play a significant role in the economy: government spending, at 53% of GDP in 2000, is the highest in the G-7. Labour conditions and wages are highly regulated. The government continues to own shares in corporations in a range of sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications.

Workforce and social relations

The French government intervenes in workforce relations in two ways:

• through statutes and regulations issued by the national government, supplemented by a heavy body of jurisprudence;
• through the enforcement of collective conventions resulting from bargaining between employers' and employees' unions.

The government imposes an hourly minimum wage (SMIC) of 8.27 € (updated every July 1).

Unemployment has been a permanent concern of French governments since the end of the 1970s. The unemployment problem will probably be the main topic of the 2007 presidential election in France. However, some economists think the unemployment will drop by itself when the baby boom generation retires from 2009 to 2020. See below for a discussion on the current measures against unemployment.

Working hours

Legislation passed in 1998 shortened the legal workweek from 39 to 35 hours effective January 1, 2000. A key objective of the legislation was to encourage job creation, for which significant new subsidies were to be made available. It is difficult to assess the impact of workweek reduction on growth and jobs since many of the key economic parameters, such as the impact on labour costs and companies' ability to reorganize work schedules, will depend on the outcome of labour-management negotiations which should extend through 2000 and beyond. See 35-hour workweek.

The conservative governments of Jean-Pierre Raffarin until 2005 and of Dominique de Villepin then tried to enact more exemptions from this law.

Unions and strikes

Membership in France's labour unions accounts for less than 10% of the private sector workforce (in 2003, 8.2% of the workforce) and is concentrated in the education, manufacturing, transportation, and heavy industry sectors. Most unions are affiliated with one of the competing national federations, the largest and most powerful of which are the CGT, FO, and CFDT.

French unions are fairly weak, and strikes are uncommon in most of the economy. Nonetheless, unions are powerful in some parts of the public sector, particularly public transportation (SNCF national railways, RATP Paris transit authority and air traffic control), where strikes have an instant effect on the general public and attract the attention of the national and foreign press.

In the case of the private sector, the weakness of the unions often leads to their calling for the government to intervene in workforce conflicts. Another issue is that unions compete between themselves; this occasionally leads to power struggles in some areas where they are powerful, even degenerating into strikes.

Current economic issues

Unemployment

Chronically high unemployment has persisted since the 1970s; a number of attempts have been made since to curb the unemployment rate.

Since the re-election of Jacques Chirac to the presidency in 2002, the successive cabinets of Jean-Pierre Raffarin and Dominique de Villepin, have tried some moderately "liberal" approach to fighting unemployment: removing or weakening workforce legislation and lowering payroll contributions in order to stimulate employment.

When he was appointed Prime Minister in May 2005, Dominique de Villepin imposed one hundred day allowance on himself to implement policies for job creation. De Villepin has said that his policies will focus on "finding jobs where there are", in other words, helping micro-enterprises (businesses with fewer than 10 employees) that are struggling to expand due to financial disincentives and helping the unemployed back into work. The Government of Dominique de Villepin has implemented several measures to promote job creation:

• Financial incentives
  • Income tax cut totaling 3.5 billion €.
  • Encouraging unemployed young adults to work in sectors with labor shortages (i.e.: hotel industry, restaurants, etc.) by offering them a 1000 € tax cut per year.
  • Offering a one-off financial reward of 1000 € to a long-term unemployed person who finds a job.
  • Cutting taxes and Social Security contributions for businesses that hire apprentices.
  • Cutting taxes and Social Security contributions for businesses that provide "face-to-face" services (i.e.: hairdressers at home, helping the elderly, childcare).
  • Removing a "fine" for businesses that fire seniors.
• Creation of new employment contracts

The French Government has found it necessary to introduce new types of contracts to help those who are most likely to be themselves unemployed, especially young adults.

• • The "First Employment Contract" (or CPE in French, meaning Contrat Première Embauche) concerns businesses with more than 20 employees who would need to hire young adults less than 26 years old. The two beneficiaries of this new employment contract will be employers and young adults. Employers will pay less Social Security contributions for 3 years and will be able to dismiss their employee at will for the first two years of the contract. Young adults will benefit from the "CPE" as they will gain working experience in their chosen field. In the event of a dismissal, the employee will receive government assistance and small financial compensation from their employer.
  • The "New Employment Contract" (or CNE, meaning Contrat Nouvelle Embauche) concerns micro-enterprises (business with less than 20 employees). It rewards employers who want to rapidly expand the size of their business by reducing Social Security contributions, eliminating financial disincentives to growth and by reducing the amount of paperwork associated with hiring employees. The first two years of the contract are to be considered as a test period, during which the employee is exempted from unfair dismissal cover and will receive government assistance in case of dismissal. Once the two year test period has lapsed, the employee will become a permanent full-time worker
• Other measures
  • Reducing administrative procedures and paperwork associated with hiring more people for micro-enterprises.
  • Encouraging unemployed and unqualified young adults to work in the army to learn new skills.

Left-wing parties and unions have criticised Dominique de Villepin's policies because they believe that jobs created will be insecure and poorly-paid. Recently, under severe protest from left-wing parties and unions, Dominique de Villepin withdrew the CPE.

Budgetary reform

Public deficit of France (1990-2006)

The conservative governments of Jean-Pierre Raffarin and Dominque de Villepin, since Jacques Chirac's election in 2002, have had to face increasing budget deficits for the State and Social Security budgets. In 2004, Jean-Pierre Raffarin introduced legislation to reform the French Social Security system and to cut costs, thereby reducing its deficit. In both cases, this government had reduced taxes or contributions. The government also increased defence spending.

The government and its supporters contend that longer-term prospects of the economy demand that the retirement age should be raised, unemployment and retirement benefits should be cut, and that the national health insurance regimes should be reformed to cut costs.

Opponents, mostly from left-wing parties but also, to a lesser extent, from the Union for French Democracy (a centrist party in the ruling coalition), contend that the proposed reforms are not good for the country and thus rightly opposed by the population. According to them, Raffarin's reforms and spending choices hit hard on working-class people and those preparing the future of the country, such as scientific researchers, while the government squanders public money on special interests through subsidies and tax cuts. They also contend that the alleged tax cuts are, in fact, effective transfers of spending from national to local taxes. In March 2004, Raffarin was dealt a severe blow in regional elections.

In 2001, the French Parliament passed the "LOLF" (Loi d'orientation sur les lois de finances), a law which greatly reformed the way the budget was passed, executed and audited. The implementation of LOLF is phased, and the main dispositions will first be applied in 2006. LOLF imposes that spending should be allocated to identifiable and auditable "missions", which better feedback to those who voted the budget about the efficiency of spending. It is yet too early to gauge the efficiency of this law.

Sectors of the economy

Industry

France, as with many modern industrialised nations, has a large and diverse industrial base. Leading industrial sectors in France are telecommunications (including communication satellites), aerospace and defence, ship building (naval and specialist ships), pharmaceuticals, electronics, construction and civil engineering, chemicals, automobile production (3.5m units in 2005) and transport equipment. Research and development spending is also high in France at 2.3% of GDP, the third highest in the OECD [2].

Energy

With no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 78% of the country's electricity production, up from only 8% in 1973, 24% in 1980, and 75% in 1990. Nuclear waste is stored on site at reprocessing facilities.

In 2006 the net production of electricity in France amounted to 548.8 TWh, of which:

• 428.7 TWh (78.1%) were produced by nuclear power generation
• 60.9 TWh (11.1%) were produced by hydroelectric power generation
• 52.4 TWh (9.5%) were produced by fossil fuel power generation
  • 21.6 TWh (3.9%) by coal power
  • 20.9 TWh (3.8%) by natural gas power
  • 9.9 TWh (1.8%) by other fossil fuel generation (fuel oil and gases by-products of industry such as blast furnace gases)
• 6.9 TWh (1.3%) were produced by other types of power generation (essentially waste-to-energy and wind turbines)
  • The electricity produced by wind turbines increased from 0.596 TWh in 2004, to 0.963 TWh in 2005, and 2.15 TWh in 2006, but this still accounts only for 0.4% of the total production of electricity (as of 2006).

Source: L’Electricité en France en 2006 : une analyse statistique

Privatisation of EDF

In November 2004, EDF (which stands for Electricité de France), the largest electricity provider in France, was floated on the French stockmarket. EDF is not the only electricity provider in France. Other electricity providers include CNR (Compagnie nationale du Rhône) and Endesa (through SNET).

Agriculture

France is the European Union's leading agricultural producer, accounting for about one-third of all agricultural land within the EU. Northern France is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region. Beef production is located in central France, while the production of fruits, vegetables, and wine ranges from central to southern France. France is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the Common Agricultural Policy (CAP) and the Uruguay Round of the GATT Agreement have resulted in reforms in the agricultural sector of the economy.

France is the world's 100 sixth-largest agricultural producer and the second-largest agricultural exporter, after the United States. However, the destination of 70% of its exports are other EU member states and many poor African countries (including its former colonies) which face serious food shortage. Wheat, beef, pork, poultry, and dairy products are the principal exports. The United States, although the second-largest exporter to France, faces stiff competition from domestic production, other EU member states, and other third world countries. U.S. agricultural exports to France, totaling some $600 million annually, consist primarily of soybeans and products, feeds and fodders, seafood, and consumer oriented products, especially snack foods and nuts. French exports to the United States are mainly cheese, processed products and wine. They amount to more than $900 million annually.

The French agricultural sector is heavily dependent upon subsidies from the European Union, which account for €11bn. France is the main country in the EU that is against the reduction of subsidies. Subsidies have given France a competitive advantage which also demotes the concept of free trade. Specific government policies, such as the infamous reclassification of French wine as a 'health food' to avoid VAT, also goes a long way to create a thriving domestic sector.

Tourism

As France is the most visited country in the world with over 75 million visitors a year, tourism is a significant contributor to the French Economy. In the 1960s the government heavily promoted the development of skiing in the French Alps through the development of new high level resorts including some of the world's most extensive ski trails. Paris, the capital of France, is also the most visited city in the world.

Arms industry

France is the third largest arms supplier in the world. The French arms industry's main customer, for whom they mainly build warships, guns, nuclear weapons and equipment, is the French Government. Furthermore, record high defense expenditure (currently at 35 billion €), which was considerably increased under the government of Prime Minister Jean-Pierre Raffarin, have contributed to the success of the French arms industries. In addition, external demand plays a big part in the growth of this sector: for example, France exports great quantities of weaponry to the US and the Middle East.

In recent years, the French Government has called, unsuccessfully, for the lifting of the EU weapons trade embargo on China.

Trade

France is the second-largest trading nation in western Europe (after Germany). Its foreign trade balance for goods had been in surplus from 1992 until 2001, reaching $25.4 billion (25.4 G$) in 1998. However, the French balance of trade was hit by the economic downturn, and went into the red in 2000, reaching US$15bn in deficit in 2003. Total trade for 1998 amounted to $730 billion, or 50% of GDP--imports plus exports of goods and services. Trade with European Union countries accounts for 60% of French trade.

In 1998, U.S.-France trade totaled about $47 billion--goods only. According to French trade data, U.S. exports accounted for 8.7%--about $25 billion--of France's total imports. U.S. industrial chemicals, aircraft and engines, electronic components, telecommunications, computer software, computers and peripherals, analytical and scientific instrumentation, medical instruments and supplies, broadcasting equipment, and programming and franchising are particularly attractive to French importers.

Principal French exports to the United States are aircraft and engines, beverages, electrical equipment, chemicals, cosmetics, luxury products and perfume. France is the ninth-largest trading partner of the U.S.

Other statistics

GDP PPP & GDP Growth Rates 2002 - 2006 est.:

Year	GDP in billions of USD PPP	% GDP Growth
2002	1603.740	1.3
2003	1641.774	0.9
2004	1724.647	2.1
2005	1811.561	1.5
2006	1889.783	2.3

Industrial production growth rate: 0.2% (2005)

Electricity:

• production: 536.9 TWh (2001)
• consumption: 433.3 TWh (2001)
• exports: 72.2 TWh (2001)
• imports: 6.2 TWh (2001)

Electricity - production by source:

• fossil fuel: 8.2%
• hydro: 14%
• other: 0.7% (2001)
• nuclear: 77.1%

Agriculture - products: wheat, cereals, sugar beets, potatoes, wine grapes; beef, dairy products; fish

Exports - commodities: machinery and transportation equipment, chemicals, iron and steel products; agricultural products, textiles and clothing and perfume

Imports - commodities: crude oil, machinery and equipment, chemicals; agricultural products

Currency: Euro (EUR) since January 1st, 1999 for all financial transactions, Euro banknotes and Euro coins were introduced February 1st, 2002. Previously was the French Franc (FRF), the official exchange rate was fixed at 6.55957 French Francs per Euro.

See also

• Economy of Europe
• Economy of the European Union
• France
• Economic history of France
• Economy of Paris
• Poverty in France

External links

• Official french exporters directory - Firmafrance.com is the Official French exporters B2B directory, powered by Ubifrance and officially endorsed by the Ministry of the Economy, Finance and Industry of France.
• OECD's France country Web site and OECD Economic Survey of France
• French National Institute for Statistics and Economic Studies (INSEE)
• Investing in French Stocks - Nov, 2006 Global investor commentary on the current state of French stocks.
• The French Revolution of 2007 - Nicholas Vardy March 9, 2007 - Investor perspective on changes affecting French markets and economy.