Macroeconomics: Policies and Analysis Project

Title - Vive La France

Group 2:

Dhruv Gupta HRA012

Kareena Billa HRA013

Simran Mirchandani HRA014

Priyanshi Gaur HRA043

Kanchi Singh HRA061

Kaustubh Agarwal HRA063

Ananya Mishra HRA066

Introduction

The economy of France is highly developed and free-market-oriented. France is the world’s 7th

largest economy but its economic growth however, has slowed down in recent years, resulting in

unemployment which has placed great pressure on the government to reboot the economy. In

2021, the economy is set to rebound from its Covid-19-induced contraction this year. Private

consumption and investment activity are seen expanding robustly, supported by fiscal stimulus

measures, while firming global demand will boost exports.

France has a diversified economy that is dominated by the service sector with over 70% of GDP

stemming from this sector whilst the industrial sector accounted for 19.5% of its GDP and the

primary sector accounted for the remainder. France exports a wide range of goods and services

and has an export-to-GDP ratio close to 30%. France’s highest dollar value goods exports

include machinery, aircraft and spacecraft, vehicles, electronic equipment and pharmaceutical

products. Additionally, France is one of the world’s largest exporters of farm and agricultural

products and is renowned for its wine, spirits and cheeses. The French government provides

significant subsidies to this sector and France is the largest exporter of farm products in Europe.

Among services, tourism is a key export and France is the most visited country in the world. The

manufacturing sector is majorly dominated by the chemical industry, automotive and armament

industry. Other key exported services include business services and transportation. In recent

years, France has been a net importer, consuming a large amount of imported goods and services.

France’s top imports are machinery, vehicles, crude oil and aircrafts. Among services, the largest

imports into France are transportation and travel services. Similar to exports, the majority of

imports are from European countries, which account for 68% of total imports.
Since the 1980s, the government of France has favored capitalism and market-orientated

policies. The government has either partially or fully privatized many national industries,

including Air France, France Telecom and Renault, and today France’s leaders remain

committed to capitalism. However, the French government still plays a role in certain key

national sectors, such as agriculture, and it will intervene in the market to moderate certain social

economic inequalities. Since the economic crisis, the government of France has had to re-

evaluate this aspect of its economic policy. France is ranked 141 out of 144 countries on “hiring

and firing practices” according to the World Economic Forum’s Global Competitiveness Report

and a labor market reform is in much demand as of now.

Apart from the aforementioned, another reason for choosing France for our analysis could be that

it was in 2020 the largest Foreign Direct Investment recipient in the European Union, EU's

second largest spender in Research and development, ranked among the 10 most innovative

countries in the world by the 2020 Bloomberg Innovation Index, as well as the 15th most

competitive nation globally, according to the 2019 Global Competitiveness Report. The

attractiveness of France as a business location is also a major plus for the EU’s economy. France

is a hub for many multinational corporations. Paris ranks 2nd in the world for hosting the

headquarters of these companies, after Tokyo and before London and New York. Therefore,

Paris solidifies the presence of the EU in the world.

Objective of the analysis

Macro-Economic Scenario of France

France was ranked as the seventh largest economic force in the world in 2019, behind the United

Kingdom and India. France is the most visited country, and the sixth-largest economy in the

world (and the third largest economy in Europe).

The GDP of France, with respect to its PPP (purchasing power parity) is approximately $2.96

trillion. The standard of living offered by the country to its people stays high, as reflected in its

GDP per capita, which is $42,877.56. In the past decade, the economic growth has slowed down,

resulting in unemployment that has consequently placed pressure on the government to reboot

the economy. The World Bank had recorded unemployment rates at 10% from 2014 through

2016. During 2017, it declined to 9.681%.

While tourism plays a major role in the economy of the country, France is also a leading

agricultural producer, accounting for about one-third of all agricultural land within the European

Union. France is the world's sixth-largest agricultural producer and the second-largest

agricultural exporter, after the United States. The chemical, automotive and armament industries

majorly dominate the manufacturing sector. The economy has grown by 2.3% during 2017 and

was expected to grow 1.8% and 1.7% during 2018 and 2019 as per the IMF.
However, after the French economy expanded by 2.3 percent in 2017, growth declined to 1.3

percent last year, due to slowing global growth and some one-off domestic factors. Still,

economic activity remained relatively more resilient compared to France’s peers, and the labor

market continued to improve gradually.

The inflation rates are expected to fall below 1%, and rise gradually by 2022, for the risks have

risen, given a disorderly Brexit, trade tensions and a softening of activity in the euro area, and the

worldwide pandemic, which has affected the domestic and international functioning of the

country, and proved to have a huge impact on tourism - France was the most visited country in

the world, making tourism a prominent sector in the economy.

In the external sector, France’s closest trading partner is Germany, which accounts for more than

17% of France’s exports and 19% of total imports.

France’s Primary Exports France’s Main Imports

Machinery Machinery
Transportation equipment Automobiles
Aerospace equipment Crude Oil
Plastics

While the French economy endured the previous economic crisis relatively well, in recent years,

France, similar to many European nations, has experienced stagnating growth and fiscal

challenges.

Balance of payments:

France has sustained a current account deficit since 2005, powered largely by trade in goods.

However, France's trade deficit decreased in 2013 to its lowest level since 2010, although this

decrease was mostly due to the fact that exports decreased less rapidly than imports.

Capital inflows, usually powered by massive quantities of foreign direct investment (FDI), have

often fluctuated in the past. For incoming FDI, France was ranked 10th in the world in 2010 and

has traditionally been a leading FDI destination. In 2013, FDI, however, experienced a large
decline, contracting 77 percent. The United States, Germany, Italy and the United Kingdom are

the countries which have the largest investments in France.

Trade Structure:

France is the second-largest exporter in Europe after its largest trading partner Germany. In

particular, France consumes large amounts of imported consumer goods, which are less

expensive than products “Made in France.” France is also a net importer of oil and remains

sensitive to changes in prices.

France is a member of the European Union (EU) and follows a trade policy with a common EU

weighted average tariff rate similar to that of other member states. In addition, France and other

EU member states are members of the World Trade Organization and have a number of bilateral

and regional trade agreements (WTO). France is a relatively open economy; there are however,

some obstacles to trade. Among goods, many agricultural products are protected at the European

level, a policy that France advocated, and French farmers have historically been dependent on

government subsidies. France receives large amounts of FDI and investment regulations are

generally transparent, although many bureaucratic impediments persist. In contrast, the financial

sector is relatively closed, with only a few foreign banks operating in the country.

Exports from France:

France exports a wide variety of goods and services and has an export-to-GDP ratio of nearly

30%. Machinery, aircraft and spacecraft, vehicles, electronic equipment and pharmaceutical
products are France's highest dollar-value exports of goods. In addition, France is one of the

largest exporters of agricultural and agricultural products in the world and is known for its wines,

spirits and cheeses. The French government provides significant subsidies to this sector and

France is the largest exporter of farm products in Europe. Among services, tourism is a key

export and France is the most visited country in the world. Other key exported services include

business services and transportation.

The majority of France's exports are to European countries, with only about one third of all

exports to non-European economies. France, followed by Belgium, Italy, Spain and the United

Kingdom, exports the largest number of goods and services to Germany. The United States is

outside the European Union, the largest destination for French exports.

Imports to France:

France has been a net importer in recent years, consuming a great deal of imported goods and

services. Machinery, vehicles, crude oil and aircraft are France's top imports. Among the

services, transport and travel services are the main imports into France.

Similar to exports, the majority of imports are from European countries, which account for 68

percent of total imports. Germany, Belgium, Italy and Spain are France's primary import

partners. France imports the most goods from China outside the European Union. As a member

of the EU, France follows the common EU average weighted tariff rate on selected imports.

Analysis of macroeconomic policies

Reforms to goods and services markets:

Simplification shock: The government announced a simplification shock in July 2013, and

supplementary measures were taken by the Simplification Board created in January 2014. 124

measures were announced in July 2013, while the Board announced a further 50 measures in

April 2014 and is planning to issue 10 new measures per month. The first effective measures

include simplification of financial statements and tax declarations for SMEs

Consumption law: In regulated professions, the law does away with the limit on the number of

salaried notaries and on pharmacists' monopoly over the sale of certain products (e.g. pregnancy

tests). It also liberalises the sale of optical products, in part, authorizing online sales of

eyeglasses and corrective lenses and ending opticians' and pharmacies' monopoly over the sale of

optical maintenance products.

Reforms to the labor market and the training system:

Unemployment insurance: The increase in the benefits waiting period for laid-off employees in

receipt of a generous separation allowance will encourage participation by older workers.

Competitiveness and Employment Tax Credit (CICE): The Competitiveness and

Employment Tax Credit (CICE) of January 2013 (National Pact for Growth, Competitiveness

and Employment of November 2012) has reduced the cost of labor for low-wage earners. The

provision came into full effect in the second half of 2014 and represented a €20 billion reduction

in the cost of labor (cutting that cost by 6% for workers earning less than 2.5 times the minimum

wage in 2014).

Responsibility and Solidarity Pact: A gradual reduction in employer social contributions,

particularly for low-wage earners. The pact reduces by two percentage points the employer social
contributions that were still based on the minimum wage, and it reduces employers’ family

contributions by 1.8 percentage points for wages between 1.6 and 3.5 times the minimum wage

in January 2015. Self-employed workers and artisans will also see a drop of more than 3

percentage points in their family contributions as of 2015.

Active labor market policies - reform of professional development training: The reform

introduced a single training account (CPF) of 150 hours, managed by the Caisse des Dépôts et

Consignations, but it retained previous training provisions and did not really simplify the system.

Moreover, it caped financing of the CPF and additional hours for long training assignments

(beyond 150 hours) and thus limited individual initiative.

Active labor market policies - apprenticeship reform: During the closing statement at the July

2014 social conference, additional subsidies (€200 million) were promised for apprenticeship

training. A target of 500 000 apprentice positions in 2017 was announced (versus 415 000 in

2013). The training schemes targeted low-skilled workers, and will special focus on growth

sectors such as digital and environment.

Financial incentives for hiring: In a bid to encourage employers to hire more staff, "hiring

bonus" to small businesses was offered. The aim was to kick-start hiring by offsetting the social

security contribution costs that may scare off employers.

Reforms to the taxation system:

Responsibility and Solidarity Pact: A progressive reduction in business taxes was announced.

The corporate tax rate was reduced from 33.3%, to 28% by 2020. The 10.7% corporate income

surtax implemented in 2011 was eliminated in 2016.

VAT increase: A VAT increase came into effect on 1 January 2014 under the Responsibility

and Solidarity Pact. The normal rate was raised from 19.6% to 20% and the intermediate rate

from 7% to 10%, while the reduced rate remained at 5.5%.

Income tax relief: An income tax reduction for lower-income families came into effect in 2014

for the 2013 tax year, and was made permanent. It lowered income taxes for 4.2 million

households.

Territorial reforms:

Reform of metropolitan management: The reform adopted in January 2014 institutes a new

approach to the governance of big cities, the métropoles. The reform applies to the metropolitan

areas of Paris, Lyon and Aix-Marseille, and will create metropolitan authorities covering several

intercommunalités. Varied institutional arrangements were proposed for Paris, Lyon and Aix-

Marseille. The law also called for the creation of metropolitan authorities for the urban areas of

Toulouse, Lille, Bordeaux, Nantes, Strasbourg, Rennes, Rouen, Grenoble, Montpellier and Brest.

The Big Investment Plan 2018-2022:

The Government has embarked on a Big Investment Plan worth 57 billion euros, which will be

implemented throughout the current five-year term to support structural reforms and respond to

four major challenges facing France: carbon neutrality, access to employment, competitiveness

through innovation and the Digital State.

Supporting these reforms through investment is to ensure their effectiveness in giving jobseekers

the skills they lack to enable them to find work, in making it possible for low-income households
to insulate their homes thereby reducing their energy consumption, and in accelerating the move

towards digital technology in public hospitals.

The plan for self-employed workers:

On 5 September 2017, the Prime Minister presented the Government’s programme for self-

employed workers. This plan of action aims to support business creation, increase purchasing

power and improve social protection for the self-employed, and to simplify and improve the

quality of services.

Tourism Plan:

In order to consolidate France’s position as the world’s leading tourist destination and reach the

objective of receiving 100 million international tourists by 2020, the Government has set out an

ambitious policy for developing the tourism sector. Initial results for tourist numbers in 2017 are

very encouraging: estimates forecast an increase of over 5 million tourists between 2016 and

2017. In total, France should receive 89 million foreign tourists in 2017. The Government would

like to set an ambitious objective: bring this figure to 100 million by 2020 and increase the

average length of stay in the country. This would lead to an increase in tourism revenue with a

new challenging objective: 50 billion euros in 2020 (against 40 billion euros at present).

Eventually, this dual objective would enable the creation of 300 000 more jobs across the whole

of Metropolitan and Overseas France.

Multiannual Energy Programme:

This programme was presented by the government of France on November 27, 2018. It presents

the trajectory to be followed over the next ten years in terms of energy policy and, therefore,

ecological transition. Because of all such green policy initiatives, France is the third most

attractive market for renewable energy as of May, 2019.

In reference to the 53rd EY Renewable Energy Country Attractiveness Index (RECAI), France

has jumped from 5th position to secure the the 3rd rank in the most attractive destination for

investment in renewable energy behind China and the United States.

This has become possible only because the government has shown more focus on both

photovoltaics and floating offshore wind.

It attributed the high net export level to large volumes of nuclear generation in France, with the

low marginal costs associated with this type of power source making it attractive for the whole

European market. France had total net exports of 39.4 terawatt-hours (TWh) during the period

from 1 January to 30 November, 2019.

Therefore this has provided a required stimulus to the falling exports of the country and made the

country self- independent for energy needs.

France’s step towards eradicating terrorism:

France has been a victim of terrorist activities. It faced terror attacks in………………………….

These kinds of continuous attacks put a question mark on the security as well as the investment

security of the investors in the host country. Potential investors tend to get away from putting

their money and capital in the country where they assume such kind of risk.
Therefore, France has spearheaded the race to secure its borders and even the terrorist forces.

One of the battles against terrorism has been fought online. In November 2014 the government

passed a law enabling it close down websites promoting the jihadist cause without needing

permission of a judge. Within months it announced it had blocked five sites accused of having

links to Isis or for promoting terrorism. By April this year some 60 sites had been blocked.

The banning order was given to Internet service providers, who had 24 hours to take "all

necessary measures to block the listing of these addresses" under the new rules.

France has introduced various measures aimed at tackling radicalization either before it occurs or

after.

It launched its own “Stop Jihadism” campaign following the January 2015 terror attacks which

was aimed at battling the powerful propaganda by Islamic state. In a powerful video it warned

those tempted to join Jihad that they would “die alone far from home”.

Other campaigns included videos with the families of those who had been radicalized and left for

Syria.

An emergency number was also created to allow friends and family to signal to authorities any

signs that someone had been radicalized. It has since received thousands of calls.

Initiative to promote the world’s cultural heritage:

The talk is about the loot which Nazis did during World War II. About three-forth was brought

back to its rightful owners at the end of the gory. But, according to the government about 2000

art objects are still unclaimed.

After the homecoming of these articles, the country expects to see a wholesome rise in its

tourism.

Connecting policies to performance of the economy

Conclusion