France

France: short-term recovery

The French economy is recovering, but its growth potential still appears much weaker than before the crisis. The EPI grades France’s current economic performance at C level, with the EPI score projected to be 87.2% in 2016. Despite solid short-term recovery, structural rigidities continue to weigh on medium-term prospects.

After almost four years of near-stagnation, GDP growth is projected to rise to 1.2% in 2015, supported by a highly accommodative external environment, in particular sharply lower oil prices, a depreciated euro, and interest rates at historic lows. The initial rebound has been driven by household consumption and exports are set to pick up as well, however, investment has not yet responded and unemployment remains stubbornly high above 10%.

High government spending has been at the heart of France’s fiscal problems for many years, with government spending reached a 57.5% of GDP in 2014, almost 11% of GDP above the euro area average. While the growth of government and health care spending has been recently contained, local government spending has continued to expand, and social spending is the highest in the OECD. Nevertheless, the government has been reducing its fiscal deficit, following EU rules and it is projected to be below 4% in 2015.

The 5-Minute Economist projects Finland’s EPI score to improve only gradually in the medium term from almost 87%, or a C level, currently to 90.4%, or a B- level, by 2020, driven by economic growth acceleration and lower unemployment rate, despite a gradual pick-up in inflation. The fiscal deficit is likely to be brought narrowly to below 3% of GDP in 2017.