French economy to swing into slowdown

The picture is not better when we look at household consumption which accounts for about 60% of GDP. Our consumer stress index is in high stress level for the first time since September 2014, mainly due to inflation-related components. The increase in the CSG (health insurance) and higher taxes on tobacco and fuels have had a negative effect on consumption and it cannot be ruled out that we will see a similar phenomenon at the beginning of 2019.

What we have learnt this year is that we should not neglect the impact of perceived inflation on consumption behavior. The consequences of withholding tax is, quite frankly, difficult to estimate. By contrast, higher green taxation from January next year (which represents about 55 billion euros over Macron's presidency) and higher oil prices could cause a new negative demand shock in the first quarter of 2019. 

Finally, the labour market is also showing signs of fragility. This is not just the consequences of external factors (the rise in oil prices), since other European countries are showing better resilience (especially Germany) and their labour markets are doing much better. In the first part of 2018, France has had three times fewer job creations than the European average. In the space of just nine months, job creation has plummeted from 112,000 at the end of 2017 to only 34,800 in Q2 of this year.

We're also starting to see a higher number of people anticipating a rise in the unemployment rate in the next 12 months, as surveyed by INSEE, which marks a clear break with the downward trend initiated since 2015. This mixed picture of employment questions the effectiveness of the structural measures that have been taken and, above all, their ability to reassure business leaders and employees alike.

The Macron effect has definitively disappeared. The structural reforms undertaken correspond to those that has been advocated for years by the IMF and other liberal international organisations. We can debate their effectiveness. One thing is certain: Emmanuel Macron’s presidency will be undermined by the slowdown in the business cycle, which is quickly decelerating. The growth peak for France was reached in late 2017, as for the rest of Europe, but the economic slowdown is much faster than in most of our neighbours that are showing an impressive resilience to ongoing risks. My fear is that lower growth will jeopardise the reform process and it will favour a short-term vision with regard to the budget and spending instead of focusing on France’s real problems.