Early Figures Show French Economy “Perking Up”

Text of report by French newspaper La Tribune website on 19 June

[Report by Fabien Piliu: "Spring Revival of Growth"]

The French economy is perking up again. Without waiting for the first estimates of GDP, which the National Institute for Statistics and Economic Studies [INSEE] will publish in the middle of August, our LCL-La Tribune-Radio Classique-iTele survey gives a clear enough signal of the acceleration of French growth in the second quarter, the pace of which is, LCL experts calculate, between 0.7 per cent and 0.8 per cent. This early estimate, which La Tribune will henceforth be revealing each quarter, is based on the robust correlation between the pace of activity and the results of this survey, whose methodological details we give opposite.

The origins of this springtime improvement are multiple. It stems, in particular, from the dynamism of small and medium-sized companies, companies employing fewer than 500 people, which represent 54 per cent of total employment (8.6 million people) and 43 per cent of market value added. “The post-election euphoria continues. The confidence of the leaders of small and medium-sized companies leaped up again in June. The synthetic index of the LCL- La Tribune-Radio Classique-iTele survey went up by 6 points to 121, a peak not reached since December 2000,” Olivier Bizimana of LCL explains.

This rebound in the survey is above imputable to the improvement in the real situation of small and medium-sized companies, boosted by a clear acceleration in demand, particularly mass consumer goods, which suggests that household consumption – the main engine of growth since 2002 – which had been disappointing since January, is staging a spring recovery. The indicators of company activity are also in the black, as is showed by the positive trend of the indices of satisfaction on the levels of production and commercial activity.

The factors of production, particularly employment, also confirm the good momentum observed since January.

The creation of jobs in the competitive sector is expected therefore to remain dynamic in the second quarter after an increase of 0.7 per cent in the first. The prospects for investment also remain well oriented in regard to increasing purchases of equipment and investment funds. This recovery is taking place in a French and international environment which is deemed highly favourable by the leaders of small and medium-sized companies.

Investment Remains Fragile

The dynamism demonstrated by small and medium-sized companies is, unfortunately, tempered by the mixed performance of the French economy as a whole. Admittedly, household consumption remains robust, despite expenditure on manufactured goods dropping back 0.3 per cent in April, but investment is giving some signs of running out of steam. According to INSEE, the recovery in the economic situation noted in April was not confirmed in May: “The synthetic indicator of the business climate remains nevertheless very much above the long-period average,” the institute notes. This vitality of investment has not yet been reflected in resurgence in industrial output, down 0.8 per cent in April. “Despite the dynamism of certain sectors like pharmaceuticals, cosmetics, and mechanical capital goods, industrial activity is being held back by certain sectors, like the automotive industry. Even construction is suffering,” notes Philippe Roos at Credit Agricole.

Is this rebound permanent? The economists are prudent. While the robustness of the demand is not threatened – pending our getting to know more about the social value-added tax – investment remains fragile. According to INSEE, it will increase by 7 per cent this year. A forecast which, it should be noted, has regularly been revised downward. In 2006 investment remained stable, while it had initially been anticipated it would increase by 5 per cent.

“As for exports, they will certainly continue to be hampered by the high level of the euro, but the speeding up of the domestic economy in Germany and, to a lesser extent, in Italy, is expected to more than make up for this adverse effect,” reckons Francois-Xavier Chauchat of Cheuvreux CA. “After this spring rebound, it is advisable to remain prudent in the interpretation of this survey. The survey has in effect clearly overreacted to the post- presidential election situation. The positive message that it sends today regarding the real situation of activity in France is doubtless slightly exaggerated. An adjustment over the coming months is therefore predictable,” says Olivier Bizimana, putting things in perspective.

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