France: Upbeat growth forecasts for 2018 - BNPP

Hélène Baudchon, Research Analyst at BNP Paribas, suggests that France growth forecasts for 2018 are still looking upbeat as after 2% in 2017, they are looking for growth of 2.3%, the IMF, 2.1% and the government, 2%.

Key Quotes

“All of these forecasts were raised by 0.3 points compared to previous versions, but uncertainty is also on the rise.”

“This is due, for a part, to the mixed bag of data for the first quarter, which led us to revise down our growth forecast (to 0.5%), with risk still on the downside. Besides, ongoing strikes in France and new global risks also make growth prospects less clear.”

“The government’s growth forecast was updated as part of its new stability programme. The fiscal trajectory for the years 2018-2022 was also revised in a favourable way, thanks largely to a more favourable starting point. Indeed, according to a preliminary estimate, the fiscal deficit amounted to 2.6% of GDP in 2017, which is 0.3 points lower than the government’s target.”

“In 2018, in addition to this “better starting point” effect, the fiscal deficit also benefits from the upgrade of the government’s growth forecast, to the tune of 0.2 points. This brings the 2018 deficit down by half a point compared to the government’s previous forecast, and the figure is now closer to 2% than 3%.”

“Lastly, the government’s national reform programme is a heavy and busy one. Many of the reforms are already underway, including the labour code reform and a series of tax cuts in favour of investment, employment and purchasing power, financed by a higher CSG solidarity tax and tax hikes on tobacco and fuels.”

“Other reforms are also in the works. Among them, we have the three-pack unemployment insurance, vocational training and apprenticeship, we also have the PACTE law for business development and employee stock ownership, education, rail transport, healthcare, State reform and pensions.”

“All of these reforms aim to raise France’s potential growth rate, create tomorrow’s jobs and, more globally speaking, build a society based on mobility and justice. From now on, these ambitions have to yield tangible results, in a not too distant future.”