France

90 Pages·1982·6.239 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
1981-1982
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JANUARY 1982
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OECD ECONOMIC SURVEYS
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FRANCE
JANUARY 1982
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December I960, which provides that the OECD shall promote policies
designed:
to achieve the highest sustainableeconomicgrowth and employ¬
ment and a rising standard ofliving in Member countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment of the world economy;
tocontributeto soundeconomicexpansion inMemberaswell as
non-member countries in the process ofeconomic development;
to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD arc Australia, Austria. Belgium. Canada.
Denmark, Finland, France, the Federal Republic ofGermany. Greece.
Iceland, Ireland, Italy.Japan, Luxembourg, the Netherlands, NewZea¬
land. Norway,Portugal,Spain,Sweden.Switzerland.Turkey, theUnited
Kingdom and the United States.
TheSocialist Federal Republic ofYugoslavia is associated in certain
work oftheOECD,particularlythatofthe Economic and Development
Review Committee.
OOECD. 1082
Application for permission to reproduce or translate all or pari ofthis publicaiion should be made to:
Directorof Information. OECD
2. rue André-Pascal. 75775 PARIS CEDEX 16. France.
CONTENTS
Introduction
I. Domestic trends 8
Demand and output 8
Labour market 15
Prices and incomes 18
Wage rigidity as a factor of inflation 22
II. External transactions 25
Current balance 25
Capital movements 29
Exchange rates 30
Medium-term trend of competitiveness 32
III. Economic policy 38
Monetary policy 38
Fiscal policy and public finance 45
Other economic policy measures 51
New medium-term strategies 55
IV. Short-term forecasts and economic policy conclusions 58
Short-term forecasts 58
Main uncertainties 61
Economic policy conclusions 64
Annex: Chronology of main economic policy measures, 1980-1981 68
Statistical annex 77
TABLES
Text
1. Demand and output 9
2. Households' appropriation account 10
3. Population and employment 15
4. Price trends 19
5. Wage trends 20
6. Comparison of wages and consumer prices in selected
OECD countries 22
7. Balance of payments on a transactions basis 29
8. Export performance of manufacturing industries 32
9. Foreign trade ratios: major OECD countries compared 33
10. Penetration of the domestic market and export ratios
in manufacturing industries 35
11. Monetary policy targets and outturns 39
12. Money and credit 41
13. Central government budget 46
14. Impact of general government transactions on demand 49
15. Comparative tax burden in selected OECD countries 50
16. Medium-term trends of public sector transactions 51
17. Secretariat forecasts 59
Statistical annex
A. National accounts 78
B. Gross fixed asset formation 79
C. Industrial production 80
D. Employment and labour market 81
E. The money supply and its counterparts 82
F. Foreign trade by area 83
G. Balance of payments of France with the rest of the world, 1972-1980 84
DIAGRAMS
1. Investment by sector 11
2. Investment and financial position of enterprises 12
3. Output indicators 14
4. Labour market indicators 16
5. Real wage gap 21
6. Foreign trade 27
7. Exchange rate of the French franc on some foreign markets 31
8. Relative competitive position 34
9. Trends of markets and exports for selected product categories 36-37
10. Interest rates 40
11. Business forecasts 62
BASIC STATISTICS OF FRANCE
THE LAND
Area (1000 sq. km.) 351.2 Majorcities(censusof1975),inh.:
Agricultural land in use Paris 2290852
(1000 sq. km.), 1979 294.9 Marseille 907854
Lyon 456674
THE PEOPLE
Population 1.1.1981 (thousands) 53838 Total labour force (1980, thousands) 23210
No. of inhabitants per sq. km. 97.7 Influx ofmanpower(1980,permanent
Totalincreaseinpopulation,1979 foreignworkersexcludingEEC
(thousands) 250 nationals) 9444
PRODUCTION
Grossdomesticproduct, atmarket Originofthegrossdomesticproduct,
prices,in 1980 atmarketprices(1980):
(billions of francs) 2754.9 Agriculture 4.5
GDP per head (US$) (1980) 12136 Industry 32.1
Grossfixed investment(1980): Construction 7.3
per cent of GDP 21.6 Services 56.1
per head (US*) 2616
Total 100.0
GENERAL GOVERNMENT
(ESNA concepts)
Currentexpenditurein 1980
(per cent of GDP) 43.6
Currentrevenuein1980
(per cent of GDP) 44.0
Grossfixedinvestmentin 1980
(per cent of GDP) 2.9
FOREIGN TRADE
Exportsofgoodsandservices, Importsofgoodsandservicesasa
includingthosetofrancarea,asa percentageofthe GDP,including
percentage of the GDP (1980) 21.1 franc area (1980) 23.1
Mainexportsasapercentageoftotal Mainimportsasapercentage oftotal
exports (1980)SITC: imports (1980)SITC:
Food,beverages andtobacco Food, beverages and tobacco 9.4
(0+1) 15.5 Machinery andtransport
Machineryandtransport equipment 21.5
equipment (7) 33.2 Iron and steel products 7.1
Iron and steel products (67+68) 9.0 Chemical products 9.1
Chemical products (5) 12.0 Mineralfuels,lubricants
Textile products (65) 3.3 and related materials (3) 26.7
THE CURRENCY
Monetaryunit: thefranc Currency unitsperUSdollar,
average ofdaily figures:
December 1981 5.7155
Year 1981 5.4343
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiven inan annextable.
The annual review of France
by the OECD Economic and Development Review Committee
took place on 11th December 1981.
The present survey has been updated subsequently.
INTRODUCTION
The recovery which got under way at the beginning of 1979 ended in the
first quarter of 1980 and real GDP fell during the year that followed. How¬
ever, given the strong carryover, the rate of growth of output averaged 1.3 per
cent in 1980. At the same time, there was a further and steep increase in
unemployment. Inflation continued to run at a very high rate (13.5 per cent
for the rise in consumer prices). Owing both to the effects of the second oil
crisis and the deterioration of France's competitive position, the current balance
showed a substantial deficit, Frs.31 billion or $7.5 billion. These trends
continued in the first half of 1981. Until the elections, apart from a few
adjustments and, in particular, some acceleration in public expenditure, economic
policy remained restrictive, the main objective being to curb inflation.
The stance of economic policy was changed by the new government at the
beginning of the second half of 1981, the primary objective now being to reduce
unemployment while at the same time containing inflationary behaviour. The
Government has taken or announced measures to encourage a recovery of private
consumption by raising the lowest incomes and social security benefits and,
in a second stage, to stimulate productive investment through tax incentives and
by expanding the nationalised sector. In addition, it was decided to take a number
of specific measures to support employment, including a reduction in working hours
and the creation of jobs in the public sector. Control of inflation is based on
temporary measures to freeze or directly control some prices and profit margins
and in the longer term on concerted action of social partners to limit the growth
of prices and the wage bill. It is also planned to reduce the amount of liquidity
in the economy by setting the target for money supply growth at less than that
of nominal GDP and to hold the general government borrowing requirement at
less than 3 per cent of GDP, which would imply some increase in tax pressure
from 1982 onwards. Finally, in October 1981 it was decided to realign the
parities within the EMS.
Given the shift in economic policy, it is likely that in 1982 and in the first
half of 1983 recovery in output, which got under way in second half of 1981,
will continue with annual GDP growth running at around 2.5 to 3 per cent.
This, and the specific measures aimed at some work-sharing, will probably allow
unemployment to stabilize. The rise in prices, on the Secretariat technical
exchange rate assumption, will probably be of the order of 13 to 14 per cent
year-on-year and the external deficit is likely to remain large, but should not
deteriorate further. These forecasts are clouded by many uncertainties some
of which are not peculiar to France. However, in a period of a marked change
in economic policy, the behaviour of economic agents, and especially the invest¬
ment decisions of businessmen, is of course particularly difficult to predict.
Part I of the survey analyses recent trends in domestic activity. Some
of these issues are also examined in a medium-term context. Part II deals with
external relations and contains an analysis of medium-term trends in competitive¬
ness. Part III analyses economic policy and the shift in stance which has
occurred since the change of government. Finally, Part IV presents the short-
term forecasts and the main associated uncertainties and formulates some eco¬
nomic policy conclusions.
I. DOMESTIC TRENDS
Demand and output
Between 1976 and 1979 the French economy experienced a generally stable
growth of output of about 3.5 per cent per year. The rate of growth of GDP
accelerated in the course of 1979, owing to inflationary expectations stemming
from the second oil shock and peaked at the beginning of 1980. GDP subse¬
quently stagnated between mid-1980 and mid-1981 as domestic demand declined
markedly, with an absolute fall in gross fixed investment and a negative contri¬
bution of stockbuilding. The depressive effect of higher oil prices on domestic
incomes in 1980 and the loss of export market shares due in particular to the
improved trade performance of the US and Japan was compounded by a non-
accomodating policy which strongly emphasised anti-inflationary objectives. A
moderate recovery has got under way at the beginning of the summer of 1981,
propelled by an acceleration of both household and public consumption reflect¬
ing the expansionary measures taken by the government returned by the June
elections and a positive contribution of the foreign balance. Even so, on
present Secretariat estimates, GDP growth for the full year should not exceed
0.6 per cent.
The growth of private consumption slowed down steadily in the course of
1980 and the first quarter of 1981 in connection with an absolute fall of dispos¬
able income. Thereafter, with disposable income staging a recovery during 1981,
the growth of consumption appears to have picked up, and, on present Secretariat
estimates, should have accelerated in the second half of the year. These cyclical
swings in total consumption reflect sharper ones in purchases of durables which,
in addition to changes in income, can be also explained by other factors. Thus
the 2 per cent volume fall in spending on durables in 1980, compared with an
average annual rate of growth of nearly 7.5 per cent in the 1970s, can be
partly attributed to very tight consumer credit conditions1, while the pick up
of sales since the second quarter of 1981 is due to the acceleration of disposable
income.
Swings in households disposable income since the beginning of 1980 have
been considerably sharper than those in consumption, but their impact has been
attenuated by offsetting movements in the savings rate. Households' real dis¬
posable income declined by 0.7 in 1980, despite a 1.3 per cent gain in real
wage compensation2, largely because of the failure of nominal transfers to
keep up with the acceleration of inflation, the weak increase in gross operating
surplus due to bad harvests, a temporary increase in the rate of social security
1. In 1980, new credits granted to households for the purchase of consumer durables
declined by 3 per cent compared with a 11 per cent rise in the prices of these goods.
2. Nominal change of disposable income and compensation of employees deflated
by consumer price index.
Table 1. Demand and output
Percentage changes from previous period at annual rates, volume
1980
1980 1981
Frs. 1980 1981 I II I II
billion
Private consumption1 1754.1 1.7 1.9 1.6 1.4 1.5 3.3
Public consumption 421.1 2.8 2.7 2.8 3.5 2.0 3.5
Gross fixed investment 593.8 0.8 -2.2 0.6 -2.2 -2.2 -2.4
Public sector, non-residential3 153.2 4.3 -0.4 3.5 2.5 -2.0 0.0
Residential construction 188.7 -3.8 -1.4 -3.9 -8.0 1.9 -1.0
Private non-residential 251.9 2.4 -4.0 0.6 -0.5 -5.2 -5.0
Final domestic demand 2769.0 1.7 1.2 1.6 0.9 0.8 2.1
Change in stockbuilding' 41.7 0.2 -1.7 -0.3 -0.2 -3.1 -0.3
Change in foreign balance1 -55.8 -0.7 1.1 -0.9 -0.9 2.5 0.5
Exports of goods and services4 580.8 3.4 5.0 2.1 -2.1 8.6 5.4
Imports of goods and services" 636.6 6.3 -0.3 6.1 2.0 -3.0 3.0
GDP at market prices 2754.9 1.3 0.6 0.4 -0.2 0.2 2.3
GDP implicit price deflator 11.5 12.1 11.0 12.0 10.9 14.3
Consumer prices 13.5 13.4 14.4 12.8 12.6 15.4
Index of industrial production* -0.4 -3.7 -4.3 -2.2 -8.0 4.0
1. Consumption in Franceof resident andnon-resident householdsand ofprivate administrations.
2. Public administrationsand national enterprises.
3. Changesexpressed asapercentageofGDPintheprevious period.
4. Not includingconsumptionbyforeigntouristsin France.
5. Not includingconsumption by Frenchtouristsabroad.
6. Quarterly index.
Sources: 1NSEE, ComptesdelaNation; OECD, Secretariatestimates.
contributions and a revision of income tax scales that only partly compensated
for fiscal drag. The saving rate declined to 14 per cent compared with 16 in
1979, possibly as households attempted to maintain their standard of living in
face of the first fall in real income in about two decades. In 1981 real dis¬
posable income recovered, increasing by about 2 per cent. 2The main contribution
should come from the rapid growth of current transfers, already marked in the first
half and subsequently boosted by the measures taken by the new government,
and the trend in social security contributions since February, following the
abolishment of the temporary surtax. On the other hand, owing to the fall
in total employment, real compensation should have stagnated in 1981 despite
the 5 per cent rise in real terms of minimum wage rates in July. However,
unlike previous periods marked by considerable acceleration in income gains,
the saving rate may have risen only fractionally in 1981, as growth this
year has probably benefitted lower income groups with high spending propen¬
sities3.
3.
1975 1978 1981
Acceleration of percentage change of real disposable income
over previous year 1.4 1.8 2.8
Change in saving rate over previous year 1.2 0.9 0.3