The French economy seems to be again on the path of a sustainable economic growth, whereas it has expanded for the fourth quarter in a row. In the second quarter of this year, the French economy expanded 0.5 percent of GDP on the quarterly basis. This growth was driven mostly by a spike in investments and growing exports. There is, however, one particularly notable fact: the country’s net trade has made the biggest contribution to the economic growth in over seven years.
Macron plans massive cuts of both the taxes and government spending
Many observers and economists note that the election win of Emmanual Macron and his promise to cut taxes (which have been raised by Francois Hollande, his predecessor) boosted consumer confidence to the record high point of the last decade. Though, economists also warn that there will be no sustainable economic growth in France unless the newly elected French president will manage to reform the country.
Ludovic Subran, who works as a chief economist at the Paris-based Euler Hermes, said: “unlike the other major European economies, France has not had a year of solid, continuous growth during the last five years, so this catch-up appears to be a natural one.” At the same time, he also warned that “France seems to be on the track of continuous growth and everyone is thrilled about it, yet it does not mean that the sustainable economic growth has actually returned to this country.”
Even though it appeared to be surprising to many observers, but the French economy has expanded 1.8 percent of GDP during the last year, matching the forecasts of economists surveyed by Bloomberg. During the first six months of this year, the French economy has grown for 1.4 percent. This figure is as high as the European Commission forecasted for the whole year of 2017. It is worth to note, however, that France is not the only country that may get back on the track of recovery. Spain, also a major European economy, is also on the track of recovery after pushing the reforms through, as its economy is projected to grow as high as 2.8 percent this year.
The First Issue to Be Tackled by the French President
In order to get on the track of a sustainable economic growth in France, its president should fix up the country’s labor market. Emmanuel Macros promised to deliver his first stage of the labor market repair by September 21. As economists predict, the plan may include novelties that will simply labor relations, limit severance payouts, and give more flexibility to companies over working hours and wages.
However, the government also plans to lower the budget deficit below the ceiling of 3 % of GDP while cutting taxes at the same time. According to the government’s plans, public expenses will be cut by as much as 20 billion Euro in 2018, which may somewhat diminish the purchasing power of consumers and slow down the recovery. Though, all those plans have helped to boost the confidence of business that has not been seen since June 2011, yet that optimism may disappear if the reforms will be blundered.