France: Risk Assessment
Country Risk Rating
Business Climate Rating
- Quality of infrastructures and public services
- Skilled and productive workforce, dynamic demographics
- Competitive international companies (aerospace, energy, environment, pharmaceuticals, luxury, agrofood, retail)
- Global agriculture leader
- High levels of savings
- Insufficient number of exporting companies, loss of competitiveness and market share
- Weakening level of product sophistication, insufficient focus on innovation
- Low employment rate among young and older people
- High public indebtedness
- Tourism sector weakened by risks of terrorism
Growth has found its level
Growth in the economy was consolidated in 2016. Domestic demand was cemented, thanks in particular to a level of household consumption that remains high. In 2017, it looks set to stay relatively high, buoyed by falling unemployment (expected at 9.3% at the end of 2017), a rise in real wages (+1.5%) and access to cheap consumer credit. These low levels will also benefit to residential investment, which should accelerate. The outlook here looks better: the number of construction permits issued in 2016 grew by over 10%. Meanwhile, business opinion surveys point to a good level of confidence in the economy. However, businesses are not minded to invest in 2017, according to an October 2016 INSEE survey. Modernization of existing production facilities would be the first reason for investment in 2017. However, company debt is not forecast to grow in 2017, and the Credit Tax for Competitiveness and Employment (CICE) and low energy costs enabled businesses to grow their margins by around 31.5% in 2016. The 2017 draft finance bill includes new business-friendly measures worth €5bn (0.2% of GDP), including a cut in corporation tax to 28% for small and medium-sized firms. Bankruptcies are therefore predicted to fall slightly in 2017 (-1% after a 3.8% fall in 2016) and the growth in start-ups since 1 January 2014 (+12% average annual growth since 2014) will continue. Nonetheless, some sectors will not benefit from this drop in bankruptcies: textile-clothing, hotel and catering, and transportation. While hotel and catering and transportation are impacted by the growing collaborative economy, which is forcing traditional players to adapt, clothing is running at over-capacity as a result of the growth of online shopping. According to Fevad, online shopping grew by 6.8% compared with the first half of 2015, but shrank by 1.6% overall.
Despite the fall in oil prices no longer having any effect on prices generally, inflation should remain low because of the limited pick-up in domestic demand and persistent over-capacity (1%).
Foreign trade will continue to hamper growth
While France has become more price-competitive compared with its neighbors (low wage rises and state support via the responsibility pact and the CICE (see above)), French exports seem set to stagnate in 2017. This beneficial effect will be offset by a slowdown in business growth among France's main trading partners. For example, the UK (7% of exports) will be affected by a fall in private investment as a result of uncertainty created by the referendum of 23 June 2016. In respect of imports, while the price of a barrel of oil will remain low in 2017, it is nonetheless predicted to rise by 20% to 53 dollars on average. This will add to the price of imports, harming France's balance of trade. The balance of services will suffer from the fall in tourism revenues. This sector accounts for 7.5% of GDP, one-third of which is accounted for by foreign tourists. The attacks on France in 2015 and 2016 will continue to put downward pressure on visitor numbers to what in 2014 was the most visited country in the world. In Paris, overnight stays booked by foreign tourists in the first seven months of 2016 were down by 16%. According to the French Economic Observatory (OFCE), the impact on GDP of Brexit and the terrorist attacks will be 0.2 percentage points in 2017 compared with 0.1 in 2016.
The presidential elections will be held in April and May 2017, and outgoing President François Hollande is not standing. François Fillon, the candidate of the Les Républicains party, is the favorite to win. Marine Le Pen, the candidate of the far-right Front National party, looks best placed to join him in the second round, partly because there will be numerous left-leaning candidates. As well as the identity of the president, another source of uncertainty lies in the ability of his or her party to win an absolute majority of seats in parliament in the legislative elections in June. Coface estimates that a sharp rise in political uncertainty could shave 0.7 points off growth in one year. While the overall French business environment remains very risk-free, as in the rest of Europe the risks associated with political instability are growing. The country has fallen 17 places in five years in the World Bank's Doing Business survey, and now sits 92nd (2015) (behind Spain, 91st).