Размещено на http://allbest.ru

16

Financial University under the Government of the Russian Federation

(Финансовый университет при правительстве Российской Федерации)

Macroeconomic variables in France

(Макроэкономические переменные во Франции)

Vovk N.M.

(Вовк Наталья Марковна)

Moscow, Russia

(Москва, Россия)

Macroeconomics - section economics , exploring the economy as a whole , as well as its components , using aggregate economic performance (gross domestic product , national income , and others .

An indicator of economic welfare of society are the macroeconomic indicators. They are very important, as they allow to assess the overall state of the economy, measure the volume of production at a particular period of time, to reveal the factors that directly determine the performance of the economy, in both the short and long term. Macroeconomic variables serve as a basis for the adoption of certain political decisions and determination of public policy.

The result of functioning of the national economy are all goods and services created in the country for a certain period of time.

In different national economies which are belonged to different economic systems, there are different methods of determining the volume of the national product. In countries with a market economy, its volume is determined by the SNA in all sectors of the economy.

The relevance of the chosen topic is conditioned by the fact that the macro-economic indicators are in today's world one of the criteria for a clear understanding of the level of development of the country and areas for further improvement in policy with regard to the state's economy.

The system of macroeconomic indicators characterizing the main place and the prospects of more active development of the main budget trends.

Based on the above, we can define the main purpose of this study as the study of macroeconomic indicators and methods of measurement.

Coming from delivered purposes, we can define the main objectives of this study:

1. Define the concept and essence of macroeconomic indicators

2. Identify the key principles of measurement of macroeconomic indicators

3. To study the concept of the system of national accounts

4. Analysis of macroeconomic variables of France.

France is a political and economic heavyweight within the European Union and Eurozone. Nevertheless, the 2008-09 global downturn hit France's economy hard, leading to a deterioration of the labor market and an inflated fiscal deficit. The country has found itself trailing other Eurozone economies that started emerging from recession in 2013 World Economic Forum. 2013. The Global Competitiveness Report 2013-2014. Geneva: World Economic Forum., but the economy is now beginning to show signs of recovery. The government is under increasing pressure to introduce structural reforms in order to tackle unemployment and prevent further erosion of purchasing power. President Franзois Hollande of the Socialist Party (Parti socialiste: PS) and his left-leaning government under Prime Minister Manuel Valls are actively addressing the deficit and labour market rigidity.

The government revoked some legislation passed by its predecessor that sought to increase competitiveness and reduce employment costs. Nonetheless, thishas been offset by labour market reforms and significant tax credits for small and medium-sized enterprises that aim to boost competitiveness, and it is likely that Hollande will adopt further cuts to labour costs in 2015 PwC,. (2015). Global Economy Watch. Retrieved 8 November 2015, from http://www.pwc.com/gx/en/issues/economy/global-economy-watch.html.

Political stability and a well-established legal environment make France an attractive destination for foreign investment, and indeed the country remains one of the most popular investment destinations in Europe, despite the widely held view that labour is expensive and trade unions militant. France's communications and transport infrastructure are among the most developed in Europe, with continental and international links well established. However, the operational environment is soured by persistent industrial action and some local-level corruption. France also faces an elevated risk of terrorism and social or inter-community tensions, although the security services are largely effective at mitigating thesethreats.

The French economy is diversified across all sectors. The government has partially or fully privatized many large companies, including Air France, France Telecom, Renault, and Thales. However, the government maintains a strong presence in some sectors, particularly power, public transport, and defense industries. With more than 84 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism. France's leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that mitigate economic inequality. France's real GDP increased by 0.4% in 2014.

The unemployment rate (including overseas territories) increased from 7.8% in 2008 to 10.4% in the fourth quarter of 2014. Youth unemployment in metropolitan France decreased from a high of 25.4% in the fourth quarter of 2012 to 24.3% in the fourth quarter of 2014. Lower-than-expected growth and high spending have strained France's public finances. The budget deficit rose sharply from 3.3% of GDP in 2008 to 7.5% of GDP in 2009 before improving to 4% of GDP in 2014, while France's public debt rose from 68% of GDP to more than 95% in 2014, and may hit 100% by 2016.IMF,. (2015). World Economic Outlook. Retrieved https://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf

The euro crisis first undermined France's economy, and now there is strong evidence that it has severely eroded French public attitudes toward the economy, the European project and the country's domestic leadership. Moreover, France has always bridged Europe's north and south. French language and culture has Latin roots, but France has historically been considered in the same economic and political league as Germany and Britain. And in their public attitudes, the French were neither Northerners nor Southerners, but a hybrid of the two. Now, measured by a number of indicators, the French look less like Germans and a lot more like the Spanish, the Italians and the Greeks.

In 2007, France's GDP grew by 2.3% The Economist Intelligence Unit. (2015). France Economy, Politics and GDP Growth Summary. Retrieved 8 November 2015, from http://country.eiu.com/france , according to the IMF. Between then and 2012 , its economy effectively stagnated. Official unemployment reached 10.2% last year. And public debt as a portion of the economy rose from 64% in 2007 to 90% in 2012. OECD,. (2015). Economic Outlook and Interim Economic Outlook. Retrieved 8 November 2015, from http://www.oecd.org/eco/economicoutlook.htm

So, in recent years the French have not had much reason to feel good about their economy. In the current poll such sentiment reaches a new low, with just 9% saying the economy is performing well. And that judgment is down 21 points since 2007. Only 11% of the French think their economy will improve over the next 12 months, making the French among the most pessimistic of Europeans. And just 9% think their children will be better off financially than their parents, by far the gloomiest forecast for the next generation.

The economic downturn over the past six years has also sharply increased the portion of the French population suffering basic deprivation. And reported incidences of not having enough money to pay for food and health care over the past year have increased more in France since 2007 than in any other of the EU countries surveyed. PwC,. (2015). Global Economy Watch. Retrieved http://www.pwc.com/gx/en/issues/economy/global-economy-watch.html

The French have long had their doubts about whether European economic integration has been good for the French economy. In 1991, the year before creation of the single European market, a plurality of 44% feared that integration would weaken France.

Today, these doubts have morphed into strong convictions. Nearly three-quarters (77%) of the French think closer business ties with the rest of Europe have undermined their overall economy.

Despite such doubts, the French have generally supported the European Union. In 2004, 69% had a positive opinion about the Brussels-based institution. But by 2013, just 41% have a favorable view.

Moreover, more than half (53%) of the French oppose giving more decision-making power to Brussels. And only 40% would consider financial assistance to other EU nations facing economic distress, down from 53% in 2010 World Economic Forum. 2013. The Global Competitiveness Report 2013-2014. Geneva: World Economic Forum.. Nevertheless, 63% of the French want to keep the euro and not go back to the franc.

The recovery accelerated sharply during the first quarter of 2015. Figures released by the National Institute of Statistics and Economic Studies (Institut National de la Statistique et des Йtudes Йconomiques) show that French GDP grew 0.6% quarter on quarter during the first quarter of 2015. This followed a revised estimate of stagnation during the fourth quarter of 2014. GDP had increased 0.2% in 2014 as a whole, down from a rise of 0.7% in 2013. The Economist Intelligence Unit. (2015). France Economy, Politics and GDP Growth Summary.

Retrieved 8 November 2015, from http://country.eiu.com/france

Размещено на http://allbest.ru

16

Domestic demand, including stocks, was the main engine of growth during the first quarter. In particular, private consumption rose at a pace not seen since the fourth quarter of 2009.

Households took advantage of very low inflation, while consumption of energy also recovered strongly following mild weather during the fourth quarter of 2014. On the other hand, total investment spending contracted again, mainly as a result of lower investment by households. More positively, business investment rose modestly during the first three months of the year, following a slight contraction during the previous quarter.

Government consumption also continued to grow during the first quarter. Meanwhile, a sharp rise in imports meant that net trade was a drag on growth during the first quarter.

Exports, which had increased at a pace not seen in six quarters during the fourth quarter of 2014, rose at a robust rate during January-March 2015, boosted by a weaker euro and improving external demand. IMF,. (2015). World Economic Outlook. Retrieved https://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf

The French economy faces significant structural problems, which will continue to constrain strong economic growth. The two main challenges for the economy are improving both the labor market and public finances.

Labor-market rigidities will weigh on activity levels. France has high productivity per hour worked and a sophisticated social welfare system, but it also suffers from low labor-force participation and high structural unemployment. High productivity partly reflects a much lower rate of labor utilization--especially of low-skilled workers--while a number of other Organisation for Economic Co-operation and Development (OECD) countries employ a much larger proportion of the working-age population OECD,. (2015). Economic Outlook and Interim Economic Outlook. Retrieved 8 November 2015, from http://www.oecd.org/eco/economicoutlook.htm .

The low utilization of labor is mainly caused by four factors: high structural unemployment, low labor-market participation among the youth, early exit from the labor market by older workers, and a relatively low number of hours worked per worker.

The high level of employment protection and a high minimum cost of labor raise the cost of employing many low-skilled people above their productivity. Non-wage costs are also particularly high in France; as a share of total labor costs, they are around one-third of total labor costs, which is the highest proportion in the Eurozone. Over the years, the response of employers to these rises in labor costs has been to reduce the demand for labor.

The employment law protection is relatively strict in France, largely because of highly restrictive dismissal procedures laid down in the Labor Code for permanent contracts, which is the standard form of contract allowed by the law. In addition to that, substantial public ownership, protection of some service-sector professions, and the absence of competition in parts of retailing in France might also be reducing the potential for growth, innovation, and employment.

Network industries are frequently still state-owned near-monopolies, and even where there has been privatization, they remain dominated by the historical incumbent company.

The retail distribution sector is regulated by a number of laws that are more restrictive than in other OECD countries and have the effect of impeding competition.

Changes aimed at increasing flexibility in the labor market have been introduced in recent years, but more needs to be done. The agreement reached in early 2008 between the government and the main trade unions contemplates the introduction of short-term contracts for skilled labor as well as the extension of probation periods.

Furthermore, it allows the termination of contracts by “mutual consent.” Additionally, the Parliament has approved a bill on working time that waters down regulations on the 35-hour-week law World Economic Forum. 2013. The Global Competitiveness Report 2013-2014. Geneva: World Economic Forum. 12 The Economist Intelligence Unit. (2015). France Economy, Politics and GDP Growth Summary.

Retrieved 8 November 2015, from http://country.eiu.com/france , while the current Socialist government introduced tax credits for businesses aimed at reducing France's elevated labor costs. It has also approved labor reform--based on the German model--to introduce some flexibility into the labor market.

Moreover, in early 2014, the government unveiled a set of measures aimed at lowering labor costs and reducing red tape. The standout policy presented was a cut in payroll taxes by 2017.

This will be done by reducing family welfare contributions paid by businesses and the self-employed, and is estimated to reduce labor costs by an average of 5-6%.

Although the still weak cyclical conditions mean that unemployment will remain relatively high in the medium term, it is expected that these measures, combined with some positive steps in terms of further active labor-market policies, should help to bring down structural unemployment once the recovery is firmly established. Nevertheless, more needs to be done in order to reduce labor-market rigidities.¹²

Public spending absorbs more than 55% of GDP, which suggests that improving the fiscal accounts would require a continuing fall in this share rather than increased revenues. The government has already unveiled EUR50 billion in spending cuts for 2015-17, as well as several tax cuts to ease the economy's elevated tax burden.

Further tightening is expected to focus on reducing spending, although the ratio of spending to GDP is still expected to remain elevated compared with France's Eurozone peers.

Despite having better demographics than most of its European peers, France's aging population will impede growth and threaten public finances.

The population has been growing steadily in recent years, and new projections show that it will continue to do so during the forecast horizon, although at a decreasing rate.

Nevertheless, an aging population means that the working age population is projected to start to decrease at an annual rate of 0.2% by 2026. Such a demographic shift has two major implications.

First, it slows the economy's potential growth for a given rate of labor-productivity gains. Second, the aging population will lift the burden of pension payments in a pay-as-you-go system. These pressures should ease, but not disappear, with the modest pension reform introduced in September 2013, which raised the level and duration of contributions but failed to tackle some of the structural problems of the system. IMF,. (2015). World Economic Outlook. Retrieved 8 November 2015, from

https://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf

It is expected the recovery to continue during the rest of 2015 and in 2016, but the quarterly growth rate is likely to have peaked during the first quarter. PwC,. (2015). Global Economy Watch. Retrieved 8 November 2015, from

http://www.pwc.com/gx/en/issues/economy/global-economy-watch.html

In particular, it is expected lower oil and other commodity prices, which are already being reflected in significantly lower inflation, to boost households' purchasing power.

Although consumer confidence remains low by historical standards, it has shown some signs of improvement in recent months, and it is expected households to use at least some of the increase in their disposable income to boost consumption. On a more negative note, private consumption, which is France's traditional growth engine and accounts for around 55% of the country's GDP The Economist Intelligence Unit. (2015). France Economy, Politics and GDP Growth Summary. Retrieved 8 November 2015, from http://country.eiu.com/france , will be hit by persistent labor-market difficulties.

Despite the expected improvement in activity, growth will not be strong enough to make a significant dent in France's unemployment rate, which currently stands at 10.3%. OECD,. (2015). Economic Outlook and Interim Economic Outlook. Retrieved 8 November 2015, from http://www.oecd.org/eco/economicoutlook.htm

Lower oil prices should also help to lower firms' input costs, although their profit margins will remain under pressure from elevated taxes and labor costs, as well as limited pricing power. Uncertainty regarding the situation in Greece could also weigh down on activity, particularly if Greece ends up defaulting and leaving the Eurozone, but it is expected contagion to be limited and temporary.

Exports are expected to benefit from a weaker euro. The currency fell to a 12-year low of USD1.0457 in mid-March. Although it has rebounded since then, it is expected it to remain weak during the rest of 2015.

Exports should also benefit from a modest improvement in global demand, as most of France's trade partners are also oil net importers and should also benefit from the fall in oil prices. In all, our July forecast sees French GDP rising 1.2% in 2015, following an increase of 0.2% in 2014. The recovery should accelerate in 2016, when GDP growing by 1.5% will be seen.

A weak labor market will be the main drag on consumption in 2015. The situation in the labor market remains tough. During the fourth quarter of 2014, the unemployment rate stood at 10.4%, its highest level in six quarters, although it edged downwards to 10.3%during the first quarter of 2015. Although it is expected activity to accelerate somewhat in 2015, it will not be enough to significantly boost employment creation.

Wage growth will remain muted. A difficult labor market is expected to put pressure on wages. Nominal wage growth is projectedto be weak in 2015 and 2016. Not only will workers' bargaining position be limited by high unemployment, but firms will be eager to increase their profit margins (which have fallen to record low levels).

Moreover, fiscal policy will not be supportive of consumption over the medium term, although experts do not expect the government to implement new tax increases (fiscal consolidation is expected to focus on spending cuts).

However, lower oil prices will help to boost households' purchasing power. After averaging USD99/barrel in 2014, oil prices are expected to remain low in 2015 and 2016. Lower oil prices will keep inflation low, thus boosting households' purchasing power. Although it is expected households to use this extra spending power to boost their savings, they are also likely to use it to increase their spending, particularly if confidence levels improve.

Quantitative easing implemented by the European Central Bank in early 2015 is also expected to benefit equity prices. This could boost spending if consumers feel more confident as a result; spending could also be boosted by positive wealth effects. Nevertheless, the impact of this is expected to be modest.

All in all, it is expected private-consumption growth to accelerate in 2015 and remain robust in 2016. Our latest forecast sees private consumption rising 1.7% in 2015, following an increase of 0.7% in 2014. Experts project consumption growth to decelerate modestly in 2016 to 1.5% World Economic Forum. 2013. The Global Competitiveness Report 2013-2014. Geneva: World Economic Forum. .

The labor-market situation is expected to stabilize in 2015. Short-term indicators suggest that firms' employment intentions remained muted at the start of 2015. Weak demand, combined with still-large spare capacity in the economy, is likely to deter firms from adding to their workforces.

Low corporate profit margins, despite their recent improvement, are also likely to weigh on job creation. Historically low interest rates may also provide an incentive for firms to replace labor with capital when possible. Forwardlooking indices measuring firms' employment expectations continue to point to persistent weakness over the coming months, despite some indices showing some stabilization. france macroeconomic budget unemployment

Measures being implemented to lower labor costs will boost employment once the recovery is more established. Tax credits and payroll tax cuts in place starting in 2015 should help reduce labor costs, which are among the highest in the European Union.

This is expected to support employment creation once cyclical conditions improve. Although the reforms go in the right direction, more needs to be done to improve the labor market's functions, which remain rigid compared with other Eurozone countries.

With growth being unexpectedly weak recently in the euro area, both structural reforms and macroeconomic policy support are crucial.

France has identified three major gaps in line with the principal international organizations' diagnoses:

1. A large output gap (around 3% in 2014). Low inflation (about 0.6% in 2014) and an unemployment rate (around 10%) that is higher than the NAIRU are clear signals of a cyclical gap. Unemployment has generally stabilized in recent quarters. This is primarily due to the reduction of youth unemployment that began in early 2013. Both trends are encouraging but as yet there has been no dramatic upturn. In this context, fiscal consolidation has to be carefully calibrated so as not to hamper recovery while restoring financial sustainability and bolstering confidence. Measures to increase the employment intensity of growth are also necessary. A close monitoring of the appropriateness of our policy mix is all the more important given that the current low rate of inflation makes fiscal consolidation more difficult and hampers structural adjustment.

2. A competitiveness gap, which resulted in a sharp loss of export market share prior to the 2008-2009 crisis and a negative current account balance. Between 2002 and 2011, France's trade deficit was trending upward, with a widening gap between imports and exports of goods since 2005. Nevertheless, the deterioration in both trade and the current account has reversed over the past two to three years. The trade deficit has narrowed continuously since 2011 - by nearly 20% thus far. It still stands at €61.4bn in 2013 but the energy deficit represents more than 80% of that figure. The non-energy deficit has been more than halved since 2011 (€13.0bn in 2013 vs. €29.3bn). France's share in world trade has been stabilizing since 2011. Several measures, such as the Competitiveness and Employment Tax Credit launched in 2013, the Research Tax Credit (CIR) and the Invest for the Future plan initiated in 2010, have played a role in this stabilization. In 2013 the current deficit ceased to worsen; it has also been sharply revised downwards for the years 2011 to 2013 and now stands at -€30bn in 2013 (- 1.4% of GDP), against €-32bn in 2012 (- 1.5% of GDP, compared to an initial forecast of €- 44bn or -2.2% of GDP). Further adjustments and a scaling-up of pro-competitive measures are required to address our remaining competitiveness gap. Therefore, efforts to reduce labor costs initiated in 2013 will be pursued through the Responsibility and Solidarity Pact.

3. France has also to address an employment gap, especially among young (15-24 years old) and senior (55-64 years old) workers, whose participation rates are too low (36.5% and 50.7% respectively, in September 2014). First steps toward the development of flexicurity have been made in close cooperation with social partners. Specific schemes to boost employment among these two groups (jobs for the future, generation contracts) initiated in recent years have been ramped up in 2014. Further measures to prevent human capital depreciation and avoiding hysteresis effects on the labor market are currently being designed and will be implemented to reduce the employment gap (vocational training reform, Youth Guarantee, agreement on unemployment insurance to further facilitate the return to the job market).

Overall, these reforms should contribute to reducing long-term unemployment and should therefore improve the growth potential of the French economy.

Reference list

1. IMF,. (2015). World Economic Outlook. Retrieved 8 November 2015, from https://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf

2. OECD,. (2015). Economic Outlook and Interim Economic Outlook. Retrieved 8 November 2015, from http://www.oecd.org/eco/economicoutlook.htm

3. PwC,. (2015). Global Economy Watch. Retrieved 8 November 2015, from http://www.pwc.com/gx/en/issues/economy/global-economy-watch.html

4. The Economist Intelligence Unit. (2015). France Economy, Politics and GDP Growth Summary. Retrieved 8 November 2015, from http://country.eiu.com/france

5. Gieve J. Coping with financial distress in a more market-oriented environment. L.: Bank of England, 2007.

6. Global Capital Markets: Entering a New Area. McKinsey Global Institute. September, 2009.

7. Moody's Analytics. (2015) France Detailed economic analysis, indicators and forecasts.Retrieved 8 November 2015, from https://www.economy.com/dismal/countries/IFRA

8. World Economic Forum. 2013. The Global Competitiveness Report 2013- 2014. Geneva: World Economic Forum.

9. World Economic Forum. 2014. The Global Competitiveness Report 2014- 2015. Geneva: World Economic Forum.

Размещено на Allbest.ru