Economy of France

This article addresses the economy of present-day France. For historical information, see Economic history of France.

With a GDP of 1.7 trillion euros (1.7×10¹² €; 2005 data), France is the sixth largest economy in the world in USD exchange-rate terms, the seventh largest by purchasing power parity, while showing the lowest poverty rate amongst the large economies. According to World Bank and IMF figures, it is the third largest in Europe after Germany and the United Kingdom. It has substantial agricultural resources, a large industrial base, and a highly skilled workforce. A dynamic services sector accounts for an increasingly large share of economic activity (74% in 2006) and has been responsible for nearly all job creation in recent years. GDP growth averaged 2% between 1994 and 1998, with 3% recorded in 2000. Compared to other economies, France's GDP growth is relatively robust, the unemployment rate is high, at nearly 10%, and a rising trade deficit has characterised a malaise in the French economy since the global economic downturn in 2000. However, France's income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably (most notably in the United Kingdom and the United States). Moreover, France's poverty rate remains one of the lowest in the world, at 6% (compared to 18% in the UK and 15% in the US).

Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate is the top priority of the French Government. In the 1990s, unemployment fell from 10% to 8.5%, although this rebounded to double digits because of dot.com crash, but currently, unemployment is back under 10%. France joined 10 other European Union countries in adopting the euro as its currency in January 1999. Since then, monetary policy has been set by the European Central Bank in Frankfurt.

Dirigisme and decline of dirigisme

Following the Second World War, Fifth Republic, France embarked on an ambitious and very successful program of modernization, under state impulse and coordination. This program of dirigisme, mostly implemented by right-wing governments, involved the state control of a minority of the industry, such as transportation, energy and telecommunication infrastructures, as well as various incentives for private corporations to merge or engage in certain projects.

However, dirigisme came to be highly contested after 1981 when newly elected socialist president François Mitterrand called for increased governmental control in the economy, nationalizing many industries and private banks. By 1983 with the initial bad economic results the government decided to renounce dirigisme and start the era of rigueur ("rigour") or corporatization. As a result the government largely retreated from economic intervention; dirigisme has now essentially receded though some of its traits remain.

Despite significant privatization over the past 15 years, the government continues to play a significant role in the economy: government spending, at 53% of GDP in 2000, is the highest in the G-7. Labour conditions and wages are highly regulated. The government continues to own shares in corporations in a range of sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications.

Workforce and social relations

The French government intervenes in workforce relations in two ways:

through statutes and regulates issued by the national government, supplemented by a heavy body of jurisprudence;
through the enforcement of collective conventions resulting from bargaining between employers' and employees' unions.

The government imposes an hourly minimum wage (SMIC) of 8.03 €.

Unemployment has been a permanent concern of French governments since the end of the 1970s. The unemployment problem will probably be the main topic of the 2007 presidential election in France. However, some economists think the unemployment will drop by itself when the baby boom generation retires from 2009 to 2020. See below for a discussion on the current measures against unemployment.

Working hours

Legislation passed in 1998 shortened the legal workweek from 39 to 35 hours effective January 1, 2000. A key objective of the legislation was to encourage job creation, for which significant new subsidies were to be made available. It is difficult to assess the impact of workweek reduction on growth and jobs since many of the key economic parameters, such as the impact on labour costs and companies' ability to reorganize work schedules, will depend on the outcome of labour-management negotiations which should extend through 2000 and beyond. See 35-hour workweek.

The conservative government of Jean-Pierre Raffarin is trying as of 2004 to enact more exemptions from this law.

Unions and strikes

Membership in France's labour unions accounts for less than 10% of the private sector workforce (in 2003, 8.2% of the workforce ^*) and is concentrated in the education, manufacturing, transportation, and heavy industry sectors. Most unions are affiliated with one of the competing national federations, the largest and most powerful of which are the CGT, FO, and CFDT.

French unions are fairly weak, and strikes are uncommon in most of the economy (see France: a nation of strikers?). On the other hand, unions are powerful in some parts of the public sector. This is especially true of public transportation (SNCF national railways, RATP Paris transit authority, air traffic control...), where strikes have an instant effect on the general public and attract the attention of the national and foreign press.

In the case of the private sector, the weakness of the unions often leads to their calling for the government to intervene in workforce conflicts. Another issue is that unions compete between themselves; this occasionally leads to power struggles in some areas where they are powerful, even degenerating into strikes.

Current issues

Unemployment

France is infamous for its high chronic unemployment rate which has persisted since the 1970s; a number of attempts have been made to curb the unemployment rate.

Generally speaking, since the re-election of Jacques Chirac to the presidency in 2002, the successive cabinets of Jean-Pierre Raffarin and Dominique de Villepin, have tried some moderately "liberal" approach to fighting unemployment: removing or weakening workforce legislation and lowering payroll contributions in order to stimulate employment.

When he was appointed Prime Minister in May 2005, Dominique de Villepin imposed one hundred day allowance on himself to implement policies for job creation. De Villepin has said that his policies will focus on "finding jobs where there are", in other words, helping micro-enterprises (businesses with fewer than 10 employees) that are struggling to expand due to financial disincentives and helping the unemployed back into work. The Government of Dominique de Villepin has implemented several measures to promote job creation:

Financial incentives
- Income tax cut totaling 3.5 billion €.
- Encouraging unemployed young adults to work in sectors with labor shortages (i.e.: hotel industry, restaurants, etc.) by offering them a 1000 € tax cut per year.
- Offering a one-off financial reward of 1000 € to a long-term unemployed person who finds a job.
- Cutting taxes and Social Security contributions for businesses that hire apprentices.
- Cutting taxes and Social Security contributions for businesses that provide "face-to-face" services (i.e.: hairdressers at home, helping the elderly, childcare).
- Removing a "fine" for businesses that sack seniors.
Creation of new employment contracts

The French Government has found it necessary to introduce new types of contracts to help those who are most likely to be themselves unemployed, especially young adults.

- The "First Employment Contract" (or CPE in French, meaning Contrat Premiere Embauche) concerns businesses with more than 20 employees who would need to hire young adults less than 26 years old. The two beneficiaries of this new employment contract will be employers and young adults. Employers will pay less Social Security contributions for 3 years and will be able to dismiss their employee at will for the first two years of the contract. Young adults will benefit from the "CPE" as they will gain working experience in their chosen field. In the event of a dismissal, the employee will receive government assistance and small financial compensation from their employer.
- The "New Employment Contract" (or CNE, meaning Contrat Nouvelle Embauche) concerns micro-enterprises (business with less than 20 employees). It rewards employers who want to rapidly expand the size of their business by reducing Social Security contributions, eliminating financial disincentives to growth and by reducing the amount of paperwork associated with hiring employees. During the first two years of the contract are to be considered as a test period, during which the employee is exempted from unfair dismissal cover and will receive government assistance in case of dismissal. Once the two year test period has lapsed, the employee will become a permanent full-time worker
Other measures
- Reducing administrative procedures and paperwork associated with hiring more people for micro-enterprises.
- Encouraging unemployed and unqualified young adults to work in the army to learn new skills.

Left-wing parties and unions have criticised Dominique de Villepin's policies because they believe that jobs created will be insecure and poorly-paid. Recently, under severe protest from left-wing parties and unions, Dominique de Villepin withdrew the CPE.

Budgetary reform

The conservative governments of Jean-Pierre Raffarin and Dominque de Villepin, since Jacques Chirac's election in 2002, have had to face increasing budget deficits for the State and Social Security budgets. In 2004, Jean-Pierre Raffarin introduced legislation to reform French Social Security to cut costs, thereby reducing its deficit. In both cases, this government had reduced taxes or contributions. The government also increased defence spending.

The government and its supporters contend that longer-term prospects of the economy demand that the retirement age should be raised, unemployment and retirement benefits should be cut, and that the national health insurance regimes should be reformed to cut costs.

Opponents, mostly from left-wing parties but also, to a lesser extent, from the Union for French Democracy (a centrist party in the ruling coalition), contend that the proposed reforms are not good for the country and thus rightly opposed by the population. According to them, Raffarin's reforms and spending choices hit hard on working-class people and those preparing the future of the country, such as scientific researchers, while the government squanders public money on special interests through subsidies and tax cuts. They also contend that the alleged tax cuts are, in fact, effective transfers of spending from national to local taxes. In March 2004, Raffarin was dealt a severe blow in regional elections

In 2001, the French Parliament passed the "LOLF" (Loi d'orientation sur les lois de finances), a law which greatly reformed the way the budget was passed, executed and audited. The implementation of LOLF is phased, and the main dispositions will first be applied in 2006. LOLF imposes that spending should be allocated to identifiable and auditable "missions", which better feedback to those who voted the budget about the efficiency of spending. It is yet too early to gauge the efficiency of this law.

Sectors of the economy

Industry

France has been very successful in developing dynamic telecommunications, aerospace, and weapons sectors.

Energy

With no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 80% of the country's electricity production. Nuclear waste is stored on site at reprocessing facilities.

Privatisation of EDF

In November 2004, EDF (which stands for Electricite de France), the sole electricity provider in France, was floated on the French stockmarket.

Agriculture

France is the European Union's leading agricultural producer, accounting for about one-third of all agricultural land within the EU. Northern France is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region. Beef production is located in central France, while the production of fruits, vegetables, and wine ranges from central to southern France. France is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the Common Agricultural Policy (CAP) and the Uruguay Round of the GATT Agreement have resulted in reforms in the agricultural sector of the economy.

France is the world's sixth-largest agricultural producer and the second-largest agricultural exporter, after the United States. However, the destination of 70% of its exports are other EU member states and many poor African countries (including its former colonies) which face serious food shortage. Wheat, beef, pork, poultry, and dairy products are the principal exports. The United States, although the second-largest exporter to France, faces stiff competition from domestic production, other EU member states, and other third world countries. U.S. agricultural exports to France, totaling some $600 million annually, consist primarily of soybeans and products, feeds and fodders, seafood, and consumer oriented products, especially snack foods and nuts. French exports to the United States are mainly cheese, processed products and wine. They amount to more than $900 million annually.

The French agricultural sector is heavily dependent upon subsidies from the European Union, which account for €11bn. France is the main country in the EU that is against the reduction of subsidies. Subsidies have given France a competitive advantage which also demotes the concept of free trade. Specific government policies, such as the infamous reclassification of French wine as a 'health food' to avoid VAT, also goes a long way to create a thriving domestic sector.

Tourism

As France is the most popular tourist country in the world, tourism is a significant contributor to the French Economy. In the 1960s the government heavily promoted the development of skiing in the French Alps through the development of new high level resorts including some of the world's most extensive ski trails.

Arms industry

France is one of the biggest arms manufacturers and exporters on the planet, coming in third place. The French arms industries main customer, for whom they mainly build warships, guns, nuclear weapons and equipment, is the French Government. Furthermore, record high defence expenditure (currently at 35 billion €), which was considerably increased under the government of Prime Minister Jean-Pierre Raffarin, have contributed to the success of the French arms industries. In addition, external demand plays a big part in the growth of this sector: for example, France exports great quantities of weaponry to the US and the Middle East.

In recent years, the French Government has called for the lifting of the weapons trade embargo on China.

Trade

France is the second-largest trading nation in western Europe (after Germany). Its foreign trade balance for goods had been in surplus from 1992 until 2001, reaching $25.4 billion (25.4 G$) in 1998. However, the French balance of trade was hit by the economic downturn, and went into the red in 2000, reaching US$15bn in deficit in 2003. Total trade for 1998 amounted to $730 billion, or 50% of GDP--imports plus exports of goods and services. Trade with European Union countries accounts for 60% of French trade.

In 1998, U.S.-France trade totaled about $47 billion--goods only. According to French trade data, U.S. exports accounted for 8.7%--about $25 billion--of France's total imports. U.S. industrial chemicals, aircraft and engines, electronic components, telecommunications, computer software, computers and peripherals, analytical and scientific instrumentation, medical instruments and supplies, broadcasting equipment, and programming and franchising are particularly attractive to French importers.

Principal French exports to the United States are aircraft and engines, beverages, electrical equipment, chemicals, cosmetics, and luxury products. France is the ninth-largest trading partner of the U.S.

Other statistics

GDP PPP & GDP Growth Rates 2002 - 2006 est.:

-	Year	GDP in billions of USD PPP	% GDP Growth
2002	1603.740	1.3
2003	1641.774	0.9
2004	1724.647	2.1
2005	1811.561	1.5
2006	1889.783	2

Industrial production growth rate: -0.3% (2003)

Electricity:

production: 520.1 TWh (2001)
consumption: 415.3 TWh (2001)
exports: 72.6 TWh (2001)
imports: 4.2 TWh (2001)

Electricity - production by source:

fossil fuel: 8.2%
hydro: 14%
other: 0.7% (2001)
nuclear: 77.1%

Agriculture - products: wheat, cereals, sugar beets, potatoes, wine grapes; beef, dairy products; fish

Exports - commodities: machinery and transportation equipment, chemicals, iron and steel products; agricultural products, textiles and clothing

Imports - commodities: crude oil, machinery and equipment, chemicals; agricultural products

Currency: Euro (EUR) since January 1st, 1999 for all financial transactions, Euro banknotes and Euro coins were introduced January 1st, 2002. Previously was the French Franc (FRF), the official exchange rate was fixed at 6.55957 French Francs per Euro.

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