The French resilience
Despite a challenging external environment, France has proven to be particularly resilient to the recent loss of momentum in Europe. One reason is the relatively high importance of domestic-oriented services and construction sectors compared with industry. In France, industry (excluding construction) contributes much less to total value added than is the case in either Italy or Germany. Thus, the country has suffered less from the decline in global trade.
At the same time, domestic demand has remained strong in France, helping to support growth. Corporate investment spending has been particularly robust, increasing at a solid pace and becoming one of the main drivers of French growth. Household spending s likely to be helped by the 2020 state budget, which contains measures to boost household purchasing power in response to the ‘yellow vest’ protest movement and also aims to bolster incentives to work.
As domestic fundamentals in France remain well anchored and should continue to support growth next year, we expect GDP growth to drop only slightly in 2020—to 1.2% compared with 1.3% this year.
Nevertheless, the outlook is not risk free. The social climate remains tense. Strikes against pension reform starting on 5 December could weigh on sentiment and economic activity if prolonged.
Beyond the social climate, consumer behaviour remains a central piece of our growth outlook. Consumer confidence has improved since the peak of the ‘yellow vest’ protests in December 2018. But household consumption in France has trailed the growth in purchasing power. If the passthrough of rising purchasing power to consumption has just been delayed, then French growth could be higher than our forecast. By contrast, a rise in uncertainty could push France’s saving ratio higher and mean that consumption growth is weaker than expected.
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