The French economy has rebounded strongly following the Covid crisis.
Government measures to compensate for lost earnings, while raising the
national debt, were successful in protecting economic
economic forecasts predict that France will show the
rate of GDP growth in Europe (+5.7%) in 2021, beaten only by
(+5.9%). This does not fully make up for the 8.1%
fall in GDP in 2020
due to the impact of Covid (the tourism industry, for instance, has
remained heavily hit by Covid in 2021) , but points to the inherent
strengths in the French economy. Paris is benefiting from the impact of
Brexit, and is now the most popular city in Europe for new investment
in financial, professional and business services. In April, New Financial
reported that " Paris will ultimately be the biggest beneficiary in
terms of jobs" following relocations out of London,
The French economy has been heavily impacted by the Covid 19 pandemic,
in the same way as otheer European economies. Government action to help
the most badly effected firms and sectors has mitigated the worst
effects. French GDP shrank by 13.8 in the second quarter, a bigger fall
than Germany (10.1%) or the USA (9.5%), but much less than the UK
(20.4%). In the third quarter, signs are that the economy is bouncing
back, though the tourism industry remains heavily penalized by the fall
in global travel.
The French economy is slowly improving, with slow growth and slowly
falling unemployment. But expect big changes before the end
of 2021, as President Macron rolls out new legislation to rid France
of cumbersome and antiquated rules that have
hampered the economy, slowed growth and kept unemployment high
for many years.
If, at the same time, the UK continues moving
towards leaving the European Single market (the hard Brexit option),
measures to make the French economic environment more business-friendly
are likely to be fast-tracked, to encourage firms to relocate from the
UK to France.
The French government resorted to the
controversial Article 49.3
of the French constitution, to introduce controversial new labour laws
that provoked huge demonstrations by unions and agitation
in many French high schools.
The "Loi El
Khomri" is designed to bring down France's chronic unemployment rate,
which has risen relentlessly during the Hollande presidency and stands
at over 10%. One might have imagined that a law to bring down
unemployment would get the full backing of the governing Socialist
party; but the left wing of the party, along with the far left, is
anchored to "old" socialism, and view the new law as a betrayal of
The law is designed to free the French
labour market from rigorous restraints that discourage employers from
hiring. At present all employers in any given business sector
bound by collective agreements that apply to the whole
The new law will allow employers and employees to agree new terms on a
company by company basis. Opponents see this as a massive attack on
employees' "acquired rights".
It will also make it
easier for employers to lay off workers, and give them more latitude
to impose more flexible working hours; the far left see this
further attack on France's iconic "35-hour week", which is considered
by many economists as one of the main factors contributing to France's
high unemployment level.
The new law will bring terms
of employment and working conditions in France more into line with
those of other European countries, notably Germany and Spain.
January 2016 France is the only major Western Europe economy in
which unemployment continues inexorably to rise - reaching
of the workforce at the end of 2015. President Hollande had made it an
election pledge to start reducing unemployment by the start of 2014,
but it keeps rising. In his New Year 2016 message, he pledged that 2016
will start to see a fall in unemployment... at last. Falling
prices and a small reduction in payroll taxes (les charges des entreprises)
should generate new jobs; but volatility in world markets and fears of
a continuing downturn in the Chinese economy could well counteract this.
February 2015 Parliament votes "Loi Macron" Economics minister Emmanuel Macron - a Socialist but
also a former Rothschilds banker - has pushed
through new measures to help the French economy improve. But
nothing game-changing in Macron's reforms. They will allow French shops
to open up to 12 Sundays a year (instead of 5), and allow shops in key
tourist locations, such as parts of Paris, to open 7/7 and up to
midnight. They make a timid start at reforming some of France's
hidebound "regulated professions", but powerful lobbies have already
derailed reform of some of these.
In spite of its limited scope, the Macron Law caused massive
controversy on the left of French politics, and had to be pushed
through the French Parliament without a vote, using the very contested Article 49-3 of the
The Macron Law follows other business-friendly measures
adopted in 2014, including a cut in employers' social insurance
contributions (down to zero for employees paid on minimum
wage) and a programmed fall in France's high corporate tax
rates (down to 28% by 2020). But while these measures will certainly
reduce the cost of doing business in France, they are not the "big
bang" that many in the business community are calling for.
► December 2014 New
minister for the economy Emmanuel Macron announces the first steps in a
series of projects to free up the French economy. Are the winds of
economic change really starting to blow in France?
Unemployment reaches new record high: almost 3.35 million out of work
Hollande's main election pledge was to cut unemployment massively and
durably; but it has increased by about 140,000 since he took office.
public deficit in 2014 was 4.3% of GDP, meaning that the government
missed its target of 4.1%, and seems unlikely to reach the EU-imposed
target of 3% in 2015.
Public spending in France, among the highest levels in the world,
reached 57.1% in 2013.
(Figures from INSEE - the French government statistical office)
Le "ras l'bol fiscal" – taxation in France has got
out of hand.
: See French tax crisis 2013
There is a popular view, often seen or heard in
media, that the French economy is somehow vastly different in its
operation from other modern economies. France is even sometimes
depicted as a something close to a rogue economy, where workers are
constantly on strike, businesses are held hostage to all powerful
unions, and free enterprise is virtually impossible.
Like most myths, the rogue economy myth - largely perpetrated
people with an axe to grind, or by outside commentators who have never
set foot in the country - has very little grounding in reality; but
like all myths it is a caricature where weaknesses are blown
of all proportion, and strengths swept under the carpet. For
its weaknesses - and its strengths - the French economy is alive and
well, and performing above average in G20 terms.
Standard & Poor's downgraded
from AAA to AA+ in January 2012, Moody's followed in
November 2012, and Fitch, the third of the main ratings'
agencies, finally downgraded France's rating in July 2013.
Since 2013 there has been an
increasing consensus, even in France, that the French economy is in the
doldrums. While president Hollande kept reaffirming that things were
getting better, few people in France believed him; even positive
figures have been greeted with a certain scepticism.
As the situation failed to improve,
much soul-searching in France, concerning the country's economic
problems. In April 2013, the French newsmagazine le Point ran an
issue headlined Are the
French lazy? To which the answer provided was a resounding
"yes" - backed up with international comparisons showing that a) the
French work shorter hours than other major European economies (1,679
hours a year, compared to 1904 hours in Germany), b) they retire
earlier than people in other European economies (average retirement age
60.3 years in France, compared to 62.6 in Germany, and 64.1 in the UK),
and c) they take more holidays than people in most other major European
holidays... 36 days per year, the same as the British, but 7
days more than the Germans. Le Point concludes with the
observation that the number of hours' work per year
per inhabitant in France (total number of hours worked divided by total
population) is among the lowest of any developed economy -
11% lower than
in Germany, 22% less than in Scandinavia, and almost 40% less than
It is not rocket-science to work out
that this comparison is very alarming for the French economy. A simple
application of essential economics, as first outlined by Adam Smith in
the Wealth of Nations,
over 230 years ago, suggests that the French
economy is in a difficult situation, compared to other developed
national economies 1.
According to the OECD, France in 2016 was the
fifth economic power, behind the USA, China, Japan and Germany, and
just ahead of the UK. But ranking national economies in a table is not
always as clear-cut as it might seem. In monetary terms, the
relative value of national economies varies with exchange rate
fluctuations which are partly due to currency speculation, not to
of nominal GDP
Product) per capita , France in 2016 was in 22nd position in the world,
one place below the UK, and four places below Germany.
Yet all is not doom and gloom. While the French may work less than
people in other countries, there are plenty of people in France who put
in very long hours - notably the self-employed. And most interestingly,
when compared on a
basis, rather than an annual
basis, French productivity is high
; in hourly terms, the French are more productive than the British and
than many other Europeans - the trouble is that they don't work enough
In industrial sectors where France has world-class skills and
workforce keen on ensuring that the contracts keep coming in,
sectors such as aerospace and shipbuilding, the perceived failings of
the French economy do not seem to limit performance. In 2016,
world's largest cruise liner was launched from the dockyards of
Saint Nazaire, and an order came in for two more megaliners;
and Airbus, the European plane manufacturer, has its
headquarters and main facility in Toulouse, assembling the world's
biggest jetliner the A380 and other successful models. In terms of
luxury goods and wines, France is a world leader.
The need for reform
Like all developed economies, France
has suffered since 2007 from the effects of the global recession; but
the effects in France have been partly cushioned by a more cautious
banking and investment sector, and by a tradition of state intervention
in the economy. In addition, France is world-leader when it comes to
the proportion of the labour force working in public sector jobs: 25%
in 2005 - few of whom were affected by the economic downturn.
While the French economy has not run out of
control like the economies of Greece, Italy, Spain or
are many in France who fear that if another European economy were to
falter, it will be France. That has not happened, and given the
undoubted strengths that the French economy has, probably will not
happen. But it will depend on how much political will there is to get
the French economy back on the right track, and make it competitive
again on a global scale.
Until the late 2010s, that political will was
singularly unforthcoming in France. Perhaps, in the past thirty years,
the great misfortune of the French economy has been the singular
France's political leaders, of both left and right, to take heed of the
warning signs, such as France's endemically high level of unemployment.
The last time a French government balanced the books was in 1980, under
Prime Minister Raymond Barre, a professor of
economics. Since then, even as the deficits have been mounting,
governments have continued to tax more and spend
even more, to the point where public spending in France reached the
level of 55.9% of GDP in 2010 - compared to 49% for the UK and 45.6% in
Germany (OCDE figures), a level considerably higher than that of any
other major economy. By 2019, it had fallen.... to 55.3%.
national economies 2.
Public spending. Comparing public spending levels is not a
of comparing economic performance, and low levels of public
as advocated by Conservative or neo-liberal economists, are liable to
negatively impact living standards and quality of life, particularly
for the less well-off. France's high levels of public spending include
many measures that directly impact the cost of living for households;
they provide virtually free health care for all, subsidized social care
for those who need it, an almost free higher education system, and good
public transport systems.
Even under President Sarkozy, a conservative
president who vowed to reform French instutions and get the economy
going again, very little was done. Like all recent French presidents,
Sarkozy, afraid of confronting too many vested interest
groups, failed to take the strong measures needed to reduce
deficits and rein in public spending. While he did have the strength to
push through unpopular pension reforms, and try to reduce the cost of
government, he did not take any of the drastic measures that the French
economy needs, if it is to start moving in the right direction again.
These include major and unpopular reforms of French labour
thorough overhall of France's byzantine and multi-layered local
government system, and
reductions in France's generous social security allowances.
In July 2013, the IMF gave a cautious
welcome to efforts being made by the Hollande government to bring down
the deficits and regenerate the French economy; but this was qualified
by a warning that more should be done to cut public spending, rather
than raise taxes. Hollande pledged to go easy on taxes, to
placing any further uncompetitive burden on French industry; but his
reforms were hampered by the far-left factions in his own party who did
not share the same economic views.
Reforming France is very difficult - to the point
at which some are saying that nothing less than a new French revolution
is needed. Maybe the election of President Macron in 2017 marked the
start of that revolution. Macron got off to a good start by introducing
pension reform and social security reforms, but then Covid came along
and all reforms were put on ice. In late 2021, a long-awaited reform to
unemployment benefits finally came into law, reducing many benefits and
making others degressive, and Macron has promised to complete the
reform of France's retirement pension schemes. This is liable to have
to wait until Macron's hypothetical second term, in 2022.
strengths of the
In many sectors, the French economy is among the strongest in the
world. France is among the leading industrial economies in the
automotive, aerospace, and railways sectors, as well as in cosmetics,
luxury goods, insurance, pharmaceuticals, telecoms, power generation,
defence, agriculture and hospitality. France is also the world's
leading tourist destination – at least in terms of numbers,
though not in terms of tourist spending.
French companies operate worldwide; they run some of the big
buses in London, as well as trains and bus services all over Europe,
they run supermarkets on four continents, including over 200
hypermarkets in China, they produce some of the pharmaceuticals, beauty
products, and dairy products people use in their daily lives worldwide;
and much more besides.
Regarding its labor
market, France has one of the highest
levels of graduates, and the
highest number of science graduates per 1000 workers of any European
In the years following the second world war,
the French economy developed massively from a largely agrarian economy
with over 40% of the population still living on the land, into a modern
industrial economy with world-class coprorations and business leaders.
In the years 1945 - 1975, known as "les trente glorieuses",
French economy grew by an average of 4.1% in terms of GDP per
inhabitant, far faster than the USA or the UK though slower than
Germany or Japan. The French state - which for most of this time was in
the hands of Conservatives - played an active role through the
establishment of a series of four year plans (Contrats de plan),
whereby the state set economic targets and economic priorities, but
left it up to private enterprise to achieve or apply them. For example,
the rapid development of the French motorway system was achieved (and
is still being achieved) by public investment offset by the sale of
long-term concessions to private or semi-private companies to operate
and maintain them.
Between 1945 and 1986, political
leaders from de Gaulle (a conservative) to Mitterrand (a socialist)
embarked on policies of nationalisation and state intervention.
For de Gaulle, nationalisation was seen
as a tool
of economic development, guaranteeing a stable environment for
sectors of the French economy, but also ensuring support from his
opponents on the left. Car-maker Renault was nationalised by
Gaulle in 1945 as much to help it recover from the war, as to placate
the Communist opposition and the unions.
Mitterrand, nationalisation was ideological. During his first
presidency, from 1981, Mitterrand initiated a series of
nationalisations in a range of different sectors, including banking,
insurance and pharmaceuticals. However, for his second presidency, he
advocated the famous "ni-ni" doctrine (the neither nor
proposing neither nationalisation nor privatisation. In actual fact,
this was a way of admitting the failure of his previous policy; during
Mitterand's second presidency, France embarked on a wholescale policy
of privatisation, which continued during the Chirac presidency,
reaching its peak under the government of socialist prime
minister Lionel Jospin.
Yet beyond the
issue of nationalisation or privatisation, the French state has
maintained an above-average ability to intervene in economic affairs,
remaining a major shareholder in utilities such as EDF where it has a
majority holding, or France Telecom (Orange), in which it has
As a result of its hands-on
approach to economic management, France has been able to ensure some
remarkable economic success stories. Among the most visible of these is
France's world-leading success in the field of rail infrastructure.
France was the first country in the world to propose, plan and set up a
dedicated high-speed rail network; today the country can boast the
world's second most extensive high-speed rail network (after
Spain), one which runs
without interruption from the North Sea to the Mediterranean, and
east-west from near the German border to the lower reaches of the
Loire. State intervention in the automotive sector has helped Renault
become one of the main world players; the French government still holds
a 15% stake in Renault which, in turn, is the leading investor (almost
45%) in Nissan.
When it comes down to hard facts, critics of
state intervention in the French economy have to tread carefully.
weaknesses of the
Paradoxically, the extent of the French state's
involvement in the economy has proved to be one of its main
weaknesses, as well as one of its main strengths. In recent decades,
the development of state favors and aid in certain economic sectors,
along with the cost of major infrastructure programs and social
services, have led to a huge increase in the budget of the French
state. To finance its programs, the French government, like all others,
has had to resort to increased taxation; but in France, a larger than
usual proportion of this taxation has fallen on business, rather than
on private individuals.
French business is currently
burdened by the highest level of employer payroll tax
sociales) in OECD countries. In 2020, employers were paying an average
payroll tax of 26.6% on top of an employee's salary. Though this has
been reduced since 2015, it remains several points higher than most
other EU countries. By comparison businesses in the UK pay a payroll
tax (NI contributions) of just 9.8%, and those in the USA just 7.6%,
which are well below the OECD average. In an increasingly
economy, this disparity is damaging for French industry, and
is one of the perceived causes of endemic high unemployment in France.
It has also led the French economy to suffer from offshoring, the
export of jobs and manufacturing capacity to low-wage countries.
Yet the question of payroll tax levels is not as
simple as some people would like to imagine. Until
recently payroll taxes almost four
higher in France than in the UK have not
crippled French industry in the way that advocates of low payroll
taxes would like to imagine; but the high cost of labour in France has
take its toll.
In 2012, French automobile giant Peugeot announced a massive
workforce reduction programme, including the suppression of 8,000 jobs
in France: with hourly total labour costs in France running
€34.2 per hour, among the highest in Europe (source Eurostat)
and higher than any other major industrialized economy, the
outlook is not good. President Macron has pledged to make France
High tax burdens are particularly felt by small
However numerous counter-measures have been introduced by successive
governments to offset their effect; these include lower levels (and in
some cases the abolition) of
payroll tax on workers paid at minimum wage, tax breaks for the hiring
of young employees or apprentices, aids for employers in certain
high-unemployment areas, and more. In all there are dozens of forms of
aid available to companies – and that is a problem in itself,
finding one's way around the maze can be a daunting task. The system
needs to employ hundreds of civil servants just for administration.
"Simplification" is one of the most frequently heard demands made by
small businesses in France.
The high level of corporate taxation in France is logically
of the principal causes of the falling competitiveness of French
industry on the global market, and its growing trade deficit.
turn contribute to France's systemic problem of high unemployment.
Employee rights -
though a great advantage from the employee's point of view - are seen
as another weakness of the French system, specially by employers. Many
aspects of France's social systems are piloted by complex management
arrangements involving the state, management and the unions - referred
to collectively as "les
partenaires sociaux". Though less than 10% of
workers in France belong to trade unions (far less than in the UK or
the USA), unions wield considerable power through their role as
sociaux. Thus, over the years, successive French
governments of both the left and the right have given in to union
demands in order to buy stability and popularity. The result is a
system whereby employees in France enjoy a high level of job protection
and guaranteed salary levels. In large corporations this is not too
much of a problem; but in small businesses employers frequently
hesitate to create jobs for fear of being unable to lay the new
employees off without considerable penalties. Alternatively they
outsource work to foreign suppliers rather than employ staff locally,
or resort to temporary contracts rather than offering full-time
permanent jobs. This situation also depresses salaries. All this is bad
for employment, since in all developed economies, it is small
businesses that create most of the new jobs.
Myths about the French economy
Finally we come to those two big myths about the French
a) that the French are always on strike, and b) that the French work
far less than other nations.
If a nation's workers
were constantly on strike, that would be a serious economic handicap;
fortunately this is not the case in France, and commentators who
suggest otherwise are just making things up. According to the IMD
survey of 2008, France lost less
days to strikes per 1000
inhabitants (3.67 days) than either the UK (10.06) or the USA
(5.67). The problem in France is that strikes are highly visible,
because they tend to be concentrated in large public services and give
rise to major protests and demonstrations in Paris.... within a few
hundred yards of bureaux of many of the world's main
stations, press agencies, newspaper correspondents and other purveyors
of news. When French public servants strike, the world knows all about
it. Conversely the world never hears much about the vast majority of
employees in France who never go on strike.
the perception that French workers work far less than their
other countries, that is not always the case. It is certainly true in
some sectors, notably in the public sector and in large industries ;
but it is not at all true in others. According to the
International Labor Organization, management level employees in France
work among the longest hours in Europe (almost 10% longer than in the
UK), while the workforce works slightly below the European average,
putting in comparable hours to workers in Sweden, but more than workers
in the Netherlands, Norway or Denmark. OECD figures (2012) also show
that labor productivity in France, in terms of GDP per hour
worked, is among the highest in Europe (only exceeded by
Benelux countries and Ireland), and
fractionally lower than in the USA. Thanks to this, France has up to
now managed to
remain a major exporting nation and one of the top six economies in the
world – though maintaining this position will not be easy,
and France's manufactured exports are currently declining at an
In the end, perhaps the main perceived weakness
of the French economy is that it is not run on quite the same model as
what the French refer to as the "Anglo-Saxon" economies. This does not
make it intrinsically less successful, just different, though not so
different. France is home to many world-scale corporations; it has its
millionnaires and its entrepreneurs, several of the best business
schools in Europe, its rich
and its poor. However the gap between the rich and poor is not as
flagrant as it is in many other countries, and the French want to keep
it this way. The French - as a nation - believe in strong
state intervention. Though they complain about high
taxation, they do
so less than people in other countries, and generally accept that it is
a necessity required to pay for their excellent welfare state. For
would rise up in rebellion (like citizens in the UK or virtually any
other western nation) if any governement suggested curtailing
public health care system in order to reduce taxes.
in the French economy.
Since 2007, France like other countries has had to adapt to
global economic realities. It is doing so through measures designed to
modernise its economy; but modernisation in France is often a difficult
process. The Sarkozy government became deeply unpopular in part
(though not exclusively) through its programs of "reform", which did
go down well with many French voters, particularly those who saw
themselves losing out. France suffered less than the UK and many other
major economies from the economic downturn in 2007; but three years
later it was also slower in bouncing back. The Sarkozy government,
though undertaking certain reforms, such as raising the retirement age,
failed to get seriously to grips with the most pressing problems of the
French economy: firstly an excessively high level of taxation, and
secondly - largely a result of the first problem - the falling
competitiveness of French business in the international market.
In mid 2012, as the socialist government set to
economy was sluggish, and deficits remained high. President
François Hollande pledged to balance the budget by
but France's national
debt continued to rise , and there was
considerable scepticism among analysts as to whether Hollande would be
able to meet the challenge. Initial measures announced by the new
government, such as the partial rolling back of the retirement age to
60 for those having worked 41 years, and the creation of new jobs in
the public education sector, were seen in many quarters as more
liable to damage France's economy than stimulate it.
Five years later, Hollande had failed to
take any radical measures to restore French
competitiveness. The timid reduction in
public spending that was announced, though causing turmoil on
Hollande's "tax and spend" left wing, could not produce the
stimulus that the French economy required.
To try and get the economy moving again, Hollande
a former Rothschild's banker, Emmanuel Macron, as minister for the
economy, with the remit to get France's economy back on the rails.
proposals caused howls of protest from left wingers, and had to be
pushed into law in spite of parliament; but they became law, even if
they were slightly watered down. Then in 2016, new labour laws were
passed, again without the consent of parliament – as is possible
under the French constitution.
It was a start, and economic figures for the final
months of the Hollande administration were somewhat better than in
previous years... moving slightly in the right direction, though still
not good. On the key measurement of unemployment, it was not
until May 2017 that it finally dropped back below 10%.... the level it
was at when Hollande assumed office in 2012. French industry
continues to suffer.
Yet if the green
shoots of recovery remain desperately few and far between, there are
more encouraging signs than there were. Macron, now
President, has pledged to get the economy working again, and a
fundamental reform of the French economy has begun. In 2019, Covid
threw a spanner in the works
Past presidents, since Mitterrand, have come to
grief on the rocks of public opinion, shelving necessary but unpopular
economic measures in the face of opposition from unions, students,
political opponents, the media and virtually everyone with an axe to
If Macron wins a second term in 2022, expect more
economic reforms over the ensuing five years.
deficit or public deficit : The amount by which a
government's annual spending exceeds its annual income.
(Gross Domestic Product)
: the total value of economic activity (i.e. wealth generated by work
or investment) within a country in a year. GDP is measured either as an
aggregate (total GDP, i.e. the size of an economy), or per person (GDP
per capita). National debt: An
indicator at a given point in time: it is the value of money owed by a
government to all its creditors, both nationally or internationally.
Servicing the debt, i.e. paying interest on the money it owes, is a
major spending item in the budgets of many nations.
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