France: Concerns over economy - Natixis

In view of Patrick Artus, Research Analyst at Natixis, all the available forecasts for the French economy are optimistic. Are they not overlooking sources of concern, in the form of factors that could weaken growth, he questions further?

Key Quotes

“France’s structural unemployment rate seems to be very high, which will rapidly lead to mounting hiring difficulties for companies.”

“These hiring difficulties will lead to faster wage increases, eroding cost competitiveness”

“France is particularly sensitive to an appreciation of the euro, due to the high price elasticity of its exports in volume terms”

“France is particularly sensitive to an increase in interest rates, given the increase in government, household and corporate debt ratios.”

"France’s weaknesses must be considered too:

“Before giving in to overblown optimism over the outlook for the French economy in light of its recent marked improvement, it is important to consider France’s weaknesses:

• The high level of the structural unemployment rate and severe hiring difficulties;
• The acceleration in wage increases due to labour market pressures and the risk of a deterioration in cost competitiveness;
• The high sensitivity of the French economy to the exchange rate;
• The high sensitivity of the French economy to interest rates.”