France's balance of payments analysis

Résumé du document

We are going to focus here on the latest France's balance of payments. The document used is mainly the balance of 2006 which was published on June 19th 2007, but will the previous years will also be useful to define the trend, and especially the 2005 balance because some information are not available for the year 2006 yet. The purpose of this memo is to analyse and explain the variations and amounts of the different accounts in the balance of payments. The French Balance of Payments is an account published by La Banque de France which retraces all the economical dealings (commercial, financial and monetary) that have been made in a given time between France and the rest of the world. This statistical document is used to establish the diagnosis of the macro economical evolution of the French economy.

Extraits

[...] The very negative goods and current transfer balances are responsible of this evolution. As far as the unbalance of the exchange of goods is concerned which has a deficit of 30 billion euros and which deficit was multiplied by 6 from 2004 to 2005 it can be largely explained by the takeoff of the energy bill in 2005. But goods are not the only responsible of the tendency; concerning services in spite of the enhancement of the travel surplus, the global surplus dropped off to 8.3 billion euros - against 10.6 billion euros in 2005. [...]

[...] This allows a small counterbalance of the very-in- deficit balance of goods. Financial Account As far as the financial account is concerned, the cash flows between resident and non-residents are at the origin of net outflow of 10.5 billion euros in 2005. In a context of strong growth of the world economy and with the take back of operations of merger and purchase in the electricity and communication industry, the French FDI (foreign direct investments) doubled in comparison to 2004 ( 91.7 billion euros in 2006 and 45.7 billion euros in 2004). [...]

[...] Analysis and explanation of this tendencies The bad balance of payments can be mostly explained by the decreasing competitiveness of France. In fact lately the competition of the developing countries grew significantly. Their balance of payments has become positive thanks to the rise of raw materials and to the conquest of commercial and industrial positions. Furthermore the evolution of the French commercial balance and also in big part of the current account balance depends on two main factors: the gap in conjuncture between France and its main commercial and financial partners (essentially the other members of the OECD) and the degree of competitiveness of the French production. [...]

[...] That is naturally a reason for its lack of competitiveness: its products are thus sold at a much higher price on an international basis, and even the quality positioning of France's products is not a strong enough argument to sell French products abroad. Conclusion In a nutshell the latest Balance of Payments of France shows that France has a problem of competitiveness compared to the rest of the world. The important deficit of the current account is not a very healthy economic situation. [...]

[...] But the growth is still significant which allows concluding that France's situation is though not alarming. Furthermore, the negative financial account does not mean that the country is in a delicate position because it traduces here the implantation of French dynamic companies abroad. [...]