May 7, 2017    8 minute read

The Economics of France

Europe at a Turning Point    May 7, 2017    8 minute read

The Economics of France

With one of the largest economies in the world, France sits comfortably as one of the most influential nations in the world. Employment opportunities and a high standard of living attract hundreds of thousands of immigrants to the country every year, and its businesses compete on the global stage.

But the French economy has been sluggish for a while now, with unemployment consistently on the higher end, and its government seems at a loss as to how to kickstart the economy. Some say the country could be headed for recession soon. While most major economies have been growing at a higher rate in recent years, France has had sluggish growth since the 2008 crisis. The result of the 2017 presidential elections will be crucial in determining what will happen to the nation’s economy.

Business Landscape

France has traditionally been a very business-friendly country, despite strict labour laws and a tradition of very strong labour unions pressuring policymakers for further worker-friendly legislation.

According to the World Bank, France is the sixth world’s largest economy by nominal GDP and the third largest in Europe, after Germany and the United Kingdom. Thirty-one of the country’s companies are listed in the Fortune Global 500, which makes the country the 4th in the list, after the US, China and Japan.

In fact, France has some of the world’s largest companies operating inside its borders. Carrefour is the number two in the world when it comes to retail, Total is number four among oil companies, PSA Peugeot Citroën is the sixth largest car manufacturer in the planet, and Accor is the biggest hotel chain group in the world.

The country has also benefitted from the Brexit vote taking place in the United Kingdom. According to the International Monetary Fund, the pressure on the sterling pound might shrink the size of the British economy and allow the French one, with €2.2trn in GDP, to surpass it.

Even though the French economy has faced slow growth since the 2008 global financial crisis, the country managed to recover from its recession very early – after only four quarters. When it comes to foreign investment, the country seems to be doing better. In 2015, France cashed in €35.7bn from foreign investment, the highest number since the global financial crisis.

Luxury Powerhouse

Paris, the capital, is a major European powerhouse for several industries. For example, L’Oréal is the largest cosmetic company in the world. Hundreds of foreign brands of beauty products change their headquarters to Paris or try to associate their brands with the country in order to achieve a higher reputation.

French luxury goods like shoes, clothes and accessories are also regarded as some of the best in the world. Louis Vuitton, the biggest luxury good company in the world, reported revenues of $10bn last year and is currently available in 460 stores in 50 different countries.

Kering, which owns Gucci, Saint Lauren, Boucheron and others, is number two on the list and also reported revenues around $10bn in 2014.

Rosy Tourism

Paris has long been known as the City of Lights or the City of Love, which makes the French capital extremely attractive to tourists from all over the world. Sights include the Eiffel Tower, the Arc de Triomphe, and the Louvre Museum which houses the famous Mona Lisa painting.

But French tourism goes far beyond just Paris. The entire country was visited by 85.7m foreign tourists in 2013 and has been the most popular tourist destination in the world. In 2012, tourism was responsible for 30% of the country’s GDP, with a total of €77.7bn, while the sector employs 2.9m people.

Most tourists arriving in the country last year came from the surrounding countries of Germany, the UK, Belgium, Italy, Switzerland and Spain, which comprised 86% of total foreign visits.

The French cuisine, known as one of the best in the world, brings food tourists who want to experience real French cuisine and the expensive Michelin-starred restaurants.

Food tourism also extends to the cheese and wine cultures. The French region of Bordeaux, famous for the red wine, lures tourists who want to see and experience wine production first hand. The same happens to the region of Champagne, known for the fizzy alcoholic beverage of the same name.

The French Riviera, or Côte d’Azur in the south-east of France, is also very popular among tourists. On the Mediterranean coast, the cities of Marseille, Cannes and Nice are the most popular ones to enjoy the sun and bathe in the sea. The ones who prefer the snow instead usually go to the Alps in the eastern part of the country on the border with Switzerland and the northern parts of Italy.

Endless Strikes

It is in the French tradition to foster big social movements. First, with the French revolution that brought Human Rights to the world; and the culture movement in the 1960s, which attracted intellectuals and artists from all over the world, big gatherings in France have always been common.

It shouldn’t come as a surprise that the same goes for protesting. The French are well aware that big social demonstrations have big media coverage and can cause disruption.

However, the French may be famous for strikes, but the days lost to strikes have actually decreased since the 1970s. Still, France has been at the top of the rank for most strike days since 2009, according to the European Trade Union.

French people strike because, unlike other northern European countries, it often leads to negotiations with the employers. While the strikers in the UK are often blasted by an unsympathetic general public, in France the public seems to accept them as necessary to improve the worker’s rights.

Aggressive Unions

Unions usually lead the protests in the country, but they don’t always achieve meaningful results. The largest strikes of 2015, for example, didn’t work. The first was aimed at stopping Sarkozy from raising the retirement age to 62. The second one was against the legalisation of gay marriage, which also failed to produce any results.

The future of unions is uncertain, though. It will depend largely on the policies passed by the newly elected government and the continuation, or not, of the austerity policy. It could lead to mass discontent and generate bigger social movements. On the other hand, if a far-right government is elected, the scale of the protests and strikes could possibly change, as well as its focus.

Still, there seems to be a change in how people perceive strikes. The middle class feels bothered by having their train or metro cancelled because of a strike. The same goes for airports staffers, taxi drivers and other unions.

Strong or Stagnant?

With a deficit of -3.1%, France surpassed the 3% of GDP desired by the European Commission. Also, the economic growth has been relatively small if compared to the one in Germany, the UK or US. France’s economy has only grown 3% since the crisis, while it has gone up 6% in Germany, 8% in the UK and 10% in the US.

The economy has also contracted in 2016 but there doesn’t seem to be a big concern yet regarding the French situation. After all, France is also the second most productive nation in the world, second only to Germany.

With a strong tradition of laid-back employment laws, France’s legal standard is 35h per week and an average working week in the country of 37.5h. This comes as a big contrast to the UK, where workers are allowed to work up to 48h per week, and the average working week is 43.6h.

However, the socialist government of François Hollande started to shake things up last year, his last as the nation’s leader. He passed a new labour law which makes it easier for companies to fire their employees. With this measure, the government hopes that French firms would be more inclined to hire and hopefully help to reduce the unemployment rate in the country. 75% of the electorate, however, disapproved of the new law and many people showed their discontent in the streets of the capital.

But France remains a very attractive country. There are currently around 25,000 foreign companies operating in there, employing 1.7m people. The population has, generally, high skills and Paris has become a tech hub for new start-up companies. But this enticing paradigm might change.

The upcoming elections might turn the country around. If far-right candidate Marine Le Pen, from the National Front Party, steals the victory, she will likely impose protectionist measures and withdraw from the euro, and likely scaring away companies and investors in the short-to-medium term. All eyes are now on today’s elections. The results could have dramatic consequences for the country’s economy. An elected Le Pen’s anti-immigrant policy could also change the way the French take to the streets and alter the motive behind the strikes from economics to social equality.

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