Credit Impulse Update: The party is over, France’s GDP is out

Explanation: The Credit Impulse indicator developed by Saxo Bank leads economic activity by 9 to 12 months. It represents the flow of new loans issued by the private sector as a percentage of GDP. France’s credit impulse is calculated using credit data from the Bank of France and data on economic activity from INSEE.

In addition, lower PMIs since the beginning of the year tend to confirm the low-growth scenario. For the first time since September 2016, the contraction of new export orders in July is a warning sign that should not be overlooked. It seems that the French economy is starting to feel the adverse effects of rising NEER, which is close to its 2009 peak, even though REER remains relatively low.

We also foresee that a lasting level of a high unemployment rate, reflecting the persistent mismatch between business needs and jobseekers’ qualifications, will constitute a negative factor for consumption. Long-term unemployment increased 7% YoY, while the rate of people who have been jobless for less than a year is declining, which confirms the need for the reform of vocational training promoted by the government. However, it is expected that virtuous effects will take several years to materialise in the labour market.

The Macron effect tends to disappear

In previous months, we talked a lot about the Macron effect. As a matter of fact, it is fading as fast as it appeared. There has been a sharp decline in consumer confidence, partially driven by the negative impact of the government’s fiscal measures, a collapse in the approval rate and lower business confidence from its Q4 2017 peak, though it seems to be more resilient than consumer confidence. 

Back to normal for the French economy

In a way, France’s growth is back to a more normal level taking in consideration its economic fundamentals and its level of potential growth, which is estimated at 1.25% by the Treasury for the period 2017-2020. Basically, a key problem of the French economy is that its recovery was slightly desynchronised with the global economic cycle. It started later than in most European countries and, thus, might be shorter since France will be hit at the same time that the other countries when the next downturn, that could take place in 2020 in the US, will happen.

From 2019, France will face major headwinds: lower global trade, as indicated by leading indicators, such as YoY South Korean exports, and likely higher oil prices as a consequence of under-investment in this sector in recent years. To sum up, France’s optimism that emerged one year ago did not last long. Unfortunately, France's World Cup win will not bring any support to growth.