Economic forecasts on French economy 2008

Résumé du document

Today, France stands at one of its lowest confidence rate since a decade. On a global scale, world trade contracted in 2007 with only 5.5% growth compared to 8.5% in 2006. The sub primes crisis is directly hitting the global financial markets and disturbing the world economy. If we have a glance at consumer prices and oil and raw materials prices, concerns are high. In this gloomy atmosphere, our report aims at analyzing the different forecasts for 2008 French Economy.

We will explain the various impacts of the international context on the French Economy. We will also lay the stress on the different mechanisms that affects consumption, investment and more generally the GDP growth. Our dossier puts mainly the emphasis on data from INSEE and BNP. Finally, we think that institutes may have had some hardships to evaluate the weight of financial crisis and incentive French Government policies of last 2007 in the mid- term.

Extraits

[...] Demography does have a cloud in the French unemployment rate. There were also jobs creations in the services sector. French economy created jobs in 2007 (services to firms, services to individuals and building sectors) which have contributed in reducing unemployment rate. However, the results of unemployment rate in March 2008 in France are actually in contradiction with the forecasts of INSEE and BNP for 2008 we presented you above. Indeed, according to the French Ministry of Labour, unemployment rose by in March after months of consecutive decline. [...]

[...] We can wonder why despite tax breaks, new incentives consumption schemes and employment rate decrease, both institute forecast a slower growth pace for consumption in 2008. If we look at the consumption no more in a Keynesian way but rather as a function of past and future expected income (for example Friedman's consumption function as the sum of functions of permanent and transitory incomes), we can assess that consumer confidence has a deep impact on their propensity to consume. As many people have lost confidence (rate -37 in April lowest since one year and a half) in government economic policy and as the international crisis is looming ahead, it is not sure that this will encourage people to consume and consequently the slower pace is justified. [...]

[...] Indeed, according to financial analysts we consider today that a company is doing well if the capacity utilization rate is above The average French equipment production is currently able to respond to an increase in demand on the domestic or global market. However, at the beginning of the 2008 the French household confidence and the slowdown in exports (due mainly to the strong value of the Euro abroad) in the first semester lead us to think that no significant investment will be undertaken to increase the French capacity utilization (demand will not increase significantly). Conditions have become less favourable to investment than last year. Figures show a slowdown in productive investment growth of in the early 2008. [...]

[...] Private consumption is forecasted to account for 80% of GDP Growth by BNP. However both INSEE and BNP forecast that consumption will remain the main factor for French GDP. One of the main reasons for this, is that they plan households to use their savings from 2007 in 2008 to balance their loss in purchase power. The first 2008 trends clearly go in this way, savings ratio is decreasing versus 2007. Another reason would be the decreasing unemployment rate which would directly impact on income. [...]

[...] Because of the increasing industrialization of many emerging countries and the sustained consumption of Western countries the world demand is booming. But the producers refuse to increase their quotas of production, so there is a gap between demand and supply which creates high tensions on prices. In addition the potential terrorist attacks threatening oil wells can also be a possible explanation for the instability of oil market. What are the consequences of this increase in the prices of crude oil? First of all, it has negative consequences on the companies depending on oil. These companies may reduce their investments. [...]