Business Cycles Analysis; The outlook for real GDP growth

Résumé du document

Nowadays, the real GDP growth seems to be the prevailing worry for every economy. We are going to analyze real GDP growth and employment in France in 2006-2007, in the context of the international economy. Our overall objective is to understand and to interpret growth forecasts for a given country (France), to understand and to analyze the elements contributing to real GDP growth.

To reach this aim, we will first study the international and national environments of the French economy, to judge whether the international and domestic contexts are favorable or unfavorable for the growth in French GDP growth, and for its constituent elements. We will then study the real economy to form a growth forecast. In the second part, we will study successively:

-Contributions to real GDP growth;
-Unemployment rates and capacity of utilization;
-Wages, Price, and Interest rates.

Finally and to conclude, we will try to find an alternative forecast scenario. The first scenario, which we will study in the first two parts, is based on the interpretation of data collected from the INSEE, the Ministry of Finance and sites of the Central Banks, that is to say the "official" sites.

Extraits

[...] A lot of economists tried to explain the determinants of investment and the consequences of the latter on the GDP growth. Keynesian theory For Keynesians, the investment depends positively on output and negatively on the rental price of capital. The effect of output on investment is called the accelerator. ΔIt = k(Dt+1 - Dt) It= Investment Demand capital/output (in France, k is on the order of According to the accelerator theory of investment developed by Aftalion and Clark, investment responds to changing demand conditions. [...]

[...] Investments can be made for other reasons in order to replace machines, or acquire software but not to increase production capacities. To conclude on this point, we can use a survey made by INSEE in January 2007 showing that only 27% of the firms are using all their production capacity compared to more than 31% in July 2006. This is a relevant figure emphasizing the fact that entrepreneurs are not going to invest more in 2007 than in 2007 in order to increase their production capacity. [...]

[...] But this deceleration would first stand for the German slowdown, which is linked to the depressive effect on the household consumption caused by the VAT tax increase effective since the January 1st Italy would keep on losing competitiveness and its economic growth would slow down in 2007 too. Except for Germany and Italy, the economic growth in the zone would remain very dynamic and would even accelerate slightly in some countries (Netherlands for example). In Spain, the domestic demand would remain strong, but it would keep on slowing down because of purchasing power and competitiveness losses, linked to the dynamism of inflation. How this international demand forecast is favourable or unfavourable to French real GDP growth? [...]

[...] This year 2007 will not have a special effect on the real French GDP growth. Structural Reforms and Fiscal Policy Nevertheless, some laws, already launched in 2006 are going to have an impact on French consumption and then on real French GDP growth. Those two first laws are going to have a positive impact on French growth: - Income tax is going to be reformed: there is a change from seven tax rates to five tax rates. This change will lead to reduce the income taxes, above all for the middle classes. [...]

[...] Such a fall is first explained by an attenuation of the geopolitical tensions in the Middle East but above all, by the softness of the temperatures on the Atlantic other side, which caused a decrease in the demand of heating oil. The current context of appeasing the tensions on the physical market also supported the backward flow of the prices. Nevertheless, the prices picked up again at the end of January 2007, supported by the fall of temperatures in the United States and by the anticipation of a real reduction in OPEC production at the beginning of February. [...]