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French Industrial Morale Rises

The times are treating Emmanuel Macron well. If the president continues to fix France’s roof and strengthen its foundations, France is marching toward a golden decade
Business is so brisk for French manufacturers that the number of firms reporting production bottlenecks is the highest in 28 years at 37%. Business is so brisk for French manufacturers that the number of firms reporting production bottlenecks is the highest in 28 years at 37%.

France’s industrial rebound gathered pace in January while broader business confidence and consumer morale remained strong but pulled back from recent highs, surveys showed last week.

Measures of business and consumer confidence have scaled multi-year peaks since the election of President Emmanuel Macron last May on a pro-business reform agenda, but some economists question how long the upswing can continue before it starts losing steam, Reuters reported.

The industrial sector started the year signaling that there is no immediate end in sight to its boom, going by a monthly industrial confidence survey from the Insee statistics agency. Economists had expected it would hold steady in January but instead it returned to a 17-year high reached in November.

Long a weak point of France’s economy after years of losing competitiveness, French industry is seeing demand surge to levels not reached since April 2011, a separate more in-depth quarterly survey from Insee showed.

Business is so brisk for French manufacturers that the number of firms reporting production bottlenecks is the highest in 28 years at 37%. More than 40% reported difficulties recruiting workers, Insee said.

That bodes well for investment and jobs as companies are forced to put money into new plant and equipment to keep up with demand while taking on additional workers.

In contrast to the strength in industry, overall business confidence weakened in January as morale in the service and construction sectors pulled back from heights not seen since 2011 in December.

Consumer Confidence Falls

Consumer confidence fell marginally, although that was largely because the January figure was rounded down. Nonetheless, economists had on average penciled in expectations for a slight improvement.

Insee’s monthly survey of consumer confidence found that households expecting inflation to rise increased this month while their concerns about unemployment fell.

With France in the midst of its strongest economic pick-up since 2011, firms have stepped up hiring to record levels in the last quarter of 2017, data published last week showed.

Economists polled by Reuters this month expect on average the economy to grow 2% this year, while Barclays raised its forecast on Friday to 2.4%, which would be the best growth rate since 2006.

“The upgrade to our forecast is mainly the result of two factors: less drag from net trade owing to, among other things, better global growth prospects; and upgraded private consumption,” the bank said in a research note.

Macron Policies Working

In 2015-2016 France introduced more reforms than any other major advanced economy. Who was the economics minister at the time? Emmanuel Macron, Cityam reported.

By late 2016, the French economy had picked up momentum. Then last year, France enjoyed even stronger growth as the global economy gathered pace.

Building on his momentum as economics minister, Macron created his political movement En Marche from scratch. The rest, they say, is history.

After winning the presidency and parliament, Macron has stuck to his major promises, including a Thatcher-style overhaul of France’s labor market. By defeating Marine Le Pen, he helped lift the cloud of political uncertainty from Europe. Challenges remain, but Macron has just started.

The times are treating Macron well. If Macron continues to fix France’s roof and strengthen its foundations, France is marching toward a golden decade.

In less than a year in office, Macron has managed to create a frisson of positive excitement about France, and of fear around the UK’s own economic prospects. But until and unless Macron introduces sweeping supply-side reforms, France will remain less attractive to business than the UK.

"The reality is that, for France to be reformed into a business-friendly economy, it will need to go through the same “break it to remake it” pains that Britain did in the eighties. Having promised to deal with France’s sclerotic labor laws, (former president) Nicolas Sarkozy pulled back. I am convinced that Macron too will stop short of dealing with the powerful and reactionary French unions and civil service. To do so requires a will of iron, not charm," Savvas P Savouri, chief economist and partner at Toscafund Asset Management, said.

"But if I’m wrong, we will then see France consumed by widespread industrial and public sector unrest."

 

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