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France optimistic despite meagre growth figures

France's economy minister put on a brave face on Friday despite the latest economic figures showing the French economy is struggling to register any growth, unlike their friends on the other side of the Rhine.

Published: 13 February 2015 09:59 CET

France optimistic despite meagre growth figures

France's economy continues to struggle, with the latest figures giving no reason to rejoice. Photo: AFP

France's economy expanded by just 0.4 percent last year as investment slumped, official data showed on Friday, but the finance minister said he expected a "more definite upturn" in 2015.

Total investment in France fell by 1.6 percent in 2014, a higher drop than the previous year, drawing concern for the eurozone's second largest economy.

Finance Minister Michel Sapin said the lacklustre growth was in line with expectations.

"It's obviously still too weak but conditions are met to allow a more definite upturn in activity in 2015," he told reporters.

The government has so far been unable to kickstart much-needed growth in a country beset by record unemployment.

Over the Rhine the German economy recorded a strong end of year performance with growth of 0.7 percent meaning the economy expanded by 1.6 percent in 2014.

"The German economy ended a volatile year on a very strong note," said ING DiBa economist Carsten Brzeski.

President Francois Hollande has launched a two-pronged attack to tackle joblessness and push for growth.

The first is known as the Responsibility Pact, a series of tax cuts for businesses in return for job creation.

The second is a package of reforms aimed at opening up France's closed economy, including extending the number of Sundays per year when stores can open their doors.

Most economists believe that France needs a growth rate of around 1.5 percent to create jobs.

Sapin disputed this, saying just one percent growth — the target for 2015 — is needed.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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