OECD Economic Surveys : France 1974.

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by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION OE COOPERATION ET DE D E V E L 0 P P E M E N T ECONOMIOUES
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- DociiKi;:,.-!- If; C statistics of FRANCE
RETOI.ir r, : , , .
THE LAND
Area(1000sq.km.) 551.2 Majorcities(censusof1968),inh. :
Arableland(1 000sq.km.) 172.0 Paris 2607625
Marseille 893771
Lyon 535000
THE PEOPLE
Population, 1.7.1973 52180000 Percentagechangeatannua]rate
No.ofinhabitantspersq.km. 95 (1967-72) 0.87
Totalincreaseinpopulation, 1972 430000 Totallabourforce(1972,thousands) 21 743
Influxofmanpower(1972,permanent
foreignworkers)
PRODUCTION
GrossNationalProduct,atmarket Originofthegrossdomesticproduction.
prices,in 1972 atmarketprices(1972) :
(billionsoffrancs,newbasis) 1001.9 Agriculture 6.8
GNPperhead(US$)(1972) 3785 Industry 40.5
Grossfixedinvestment(1972) : Construction 11.0
percentofGNP 25.9 Services 41.7
perhead(USJ) 980 TTotal1 100.0
GENERAL GOVERNMENT
(standardisedaccountconceptsanddefinitions)
Currentexpenditurein 1972
(percentofGNP) 33.6
Currentrevenuein 1972
(percentofGNP) 38.0
Grossfixedinvestmentin 1972
(percentofGNP) 3.1
FOREIGN TRADE
Exportsofgoodsandservices, including Importsofgoodsandservicesasa
thosetofrancarea,asapercentageof percentageoftheGNP.including
theGNP(1972) 18.0 francarea(1972) 17.2
Mainexportsasapercentageoftotal Mainimportsasa percentageoftotal
exports(1972)SITC : imports(1972)SITC :
Food,beveragesandtobacco(0 -*- 1) 17.7 Food, beveragesandtobacco 12.2
Machineryandtransport Machineryandtransportequipment 26.3
equipment(7) 33.5 Ironandsteelproducts 9.9
Ironandsteelproducts(67 -; 68) 8.6 Chemicalproducts 8.3
Chemicalproducts(5) 9.5 Mineralfuels, lubrilicantsand
Textileproducts(65) 4.7 relatedmaterials(3) 13.2
THE CURRENCY
Monetaryunit:thefranc CurrencyunitsperUSS:
centralrate,asfrom 14.2.1973
spotcrate,2.1.1974:
commercialfranc 4.76
financialfranc 4.94
Note An internationalcomparisonofcertain basicstatisticsisgiveninanannextable.
OECD ECONOMIC SURVEYS
ARCHIVE
REFER EN c
. DOCUMENT PR!'
RETOUR BUREAU e
FRANCE
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, 1960, which provides
that the OECD shall'promotepolicies designed:
(cid:9)to sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy;
to contribute to sound economic expansion in
Member as well as non-member countries in the
process ofeconomic development;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accord¬
ance with international obligations.
The Members of OECD are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, the Federal
Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan,
Luxembourg, the Netherlands, New Zealand, Norway, Por¬
tugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdomandthe UnitedStates.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
oftheEconomicandDevelopmentReview Committee.
*
* *
The annual review ofFrance
bytheOECDEconomicandDevelopmentReviewCommittee
took place on 19th December 1973.
The present Survey has been updatedsubsequently.
© Organisation forEconomicCo-operation and Development, 1974.
Queries concerning permissions or translation rights should be
addressed to :
DirectorofInformation, OECD
2, rueAndré-Pascal, 75775 PARIS CEDEX 16,France
CONTENTS
Introduction 5
I Inflation and demand management policy 6
Acceleration ofthe wage-price spiral 6
Increasingly restrictive trends ofpolicies 15
II Recent trends and short-term prospects 23
Recent trends 23
Elements ofuncertainty in the 1974 forecasts 36
III The public sector : Medium-term trends 38
Structure and development ofthe public sector 38
IV Policy issues and conclusions 49
Annex Principal economic policy measures taken in 1973 53
TABLES
Text
1 Trend ofprices 8
2 Trend ofwages 14
3 Money and credit 17
4 Indicators ofthe incidence of general government transactions on
demand 20
5 Consolidated account ofgeneral government 22
6 Demand and output 24
7 Unemployment rates by age and sex 29
8 Breakdown ofregistered unemployed atend June 1973 by length of
time registered, age and sex 29
9 Balance ofpayments on a transactions basis 33
10 Initial forecasts for 1974 made in October 1973 37
11 Structure ofpublic expenditure: international comparisons 40
12 Functionalbreakdownofgeneral governmentexpenditure 1957-1966 43
13 Total tax burden : international comparisons 45
Statistical Annex
A National accounts: National product and expenditure 70
B National accounts : quarterly figures 71
C Gross domestic fixed asset formation 72
D Income and expenditure of households and private non-profit
institutions 73
E Industrial production 74
F Employment and labour market 75
G General government revenue and expenditure 76
H The money supply and its counterparts 77
I Credits to the economy: 78
(a) Credits financed by the banking system 78
(b) Credits and loans financed by the banking system, specialised
institutions and the treasury 79
J Interest rates 80
K Breakdown offoreign trade by commodities 81
L Foreign trade by area 82
M Balance ofpayments ofFrance withthe rest ofthe world, 1967-1972 83
DIAGRAMS
1 Price trends 7
2 Indicators linked with the trend offood prices 9
3 Indicators linked with the trend ofprices of manufactures 12
4 Interest rates 16
5 Changes in the money supply and some ofits counterparts 19
6 Demand and output indicators 25
7 Indicators ofcapacity utilisation 27
8 Labour market 28
9 Unemployment: medium-term trend 30
10 Effective rate ofexchange 32
II Behaviour ofthe franc on the foreign exchange market 35
12 Structure ofthe general government account 41
13 Central government expenditure by functions (1872-1968) 42
14 Private consumption and pureprivate consumption 46
INTRODUCTION
The French economy showed some very satisfactory results in 1973 in
terms ofvolume, and the growth in GDP mayhavereached nearly6.5percent
for the year as a whole. Private consumption and investment expanded
steadily, andtherewasrapidandbalanced growthinbothexportsand imports.
Althoughproduction rose slightly more rapidly thancapacity,theemployment
situation did not seem to have improved significantly, however; and at the
same time growth was accompanied by inflationary pressures which, after
a pause in the first quarter of 1973 due to the effects ofreducing certain rates
ofVAT, becameaccentuatedafterthesecond quarter,theriseinpricesreaching
an annual rate ofover 10 per cent in the second half ofthe year.
Before allowing for the oil crisis, the 1974 outlook was for a moderate
slowdown in the annual rate of economic growth, accompanied by a certain
deceleration in price and wage increases. The moderation in price rises was
associated in particular with the slower upward trend expected in world prices
for food and raw materials. Today, however, these forecasts are surrounded
by the great uncertainty regarding the effects which the oil crisis (involving
a reduction, if only temporary, in supplies and a very sharp increase in the
prices of oil products) will have on the level ofeconomic activity and prices.
Economic policy gradually took a more restrictive turn during 1973.
Despite the tightening up ofmonetary policy (with quantitative controls and
an exceptionally high level ofinterest rates), enterprises do not seem to have
experienced difficulties so far in financing, owing to their verystrongfinancial
position. On the other hand, the tighter monetary policy certainly affected
the behaviour of households in 1973, and further stringency in 1974 might
create serious financing difficulties for private enterprises. The 1973 budget
will probably show a surplus, but given its fairly sustained expansion, public
expenditure does not seem to have exerted a dampening effect on demand.
The fall in revenue due to lowering of some rates of VAT at the beginning
ofthe year was more than offsetbythe rise inrevenue resultingfromincreases
in taxable incomes. The Government continued its prices and incomes policy
but apparently not always with the results hoped for. At the end of 1973 a
new set ofmeasures to control inflation was introduced and on 19th January
it was decided to waive for six months the compulsory obligation for the
central bank to intervene on the foreign exchange markets, so as to prevent
speculative capital movements from running down the reserves.
The first part ofthe present study analyses the problems ofinflation and
demandmanagementpolicyinthe Frencheconomy, and describesthe Govern¬
ment's policy instruments (monetary policy, budget policy and prices policy).
The second part is devoted to recent trends and short-term forecasts, dealing
separately with internal equilibrium and balance-of-payments problems.
The third part deals with some aspects ofthe public sector in France (its size,
OECDEconomicSurveys
its impact on cyclical developments and its part in changing the structure of
the French economy), in conjunction with the problem of inflation. It
concludes by touching on the current aspects ofeconomic policy.
I INFLATION AND DEMAND MANAGEMENT POLICY
Acceleration ofthe wage-price spiral
The disquieting acceleration ofthe rise in pricespersuaded the authorities
to take a series of counter inflationary measures in December 1972,based on
progressively tighter monetary restrictions and on two specific measures
which were expected to take effect quickly, namely a differential reduction
in the rates ofVAT, and the issue ofa public loan1. These measures could
admittedly have only a comparatively limited effect, but they did succeed in
checking the trend temporarily, since the rise in the retail price index was
slowed downfrom an annual rate ofapproximately 8.5 per cent in the second
half of 1972 to one of hardly more than 3 per cent in the first three months
of 1973. Pressure on prices again became much stronger, however, in the
Spring and after April the annual rate ofincrease was approximately 10 per
cent. It was accompanied by a steeper increase in wages, with hourly rates
rising at an annual rate of approximately 15 per cent during the first nine
months of the year, although this was admittedly partly connected with the
policy ofupgrading the lowest wage rates.
Despitethedifferentialreductionintherates ofVATand the otheraccom¬
panying measures, the rise in consumer prices was much more rapid in 1973
thanthealreadysubstantial risein 1972. Takingintoaccountthetrend during
the period April-October and the impact ofthe recent rise in crude oil prices2
in the last few months ofthe year, the rise in the monthly retail price index
for the whole of 1973 might be of the order of 8.5 per cent, which would
represent an annual average of approximately 7.2 per cent. This trend can
admittedly be largely attributed to the prices offood products, which between
April and October were rising at an annual rate of nearly 13.5 per cent and
accounted for more than 40 per cent of the total rise in retail prices during
that period. Prices of manufactures in the private sector also rose appre¬
ciably faster, however, at an annual rate which moved from a little over 6 per
cent in the second half of 1972, to approximately 7.5 per cent in the period
April-October 1973. Prices of services in the private sector, on the other
1 The anti-inflationary measures of December 1972 were described in detail in the
last Annual Survey of France, dated February 1973. So far as VAT was concerned, the
normalrateapplyingtoaveryhighproportionofmanufactureswasreducedon1stJanuary,
1973from23percentto20percent,therateapplyingtofreshcakesandpastrieswasreduc¬
edfrom 17.6percentto7percent,andthelatterratewasappliedtoallsolidfoodproducts.
Therateof7.5 percentapplyingto beefwas suspended initiallyforaperiod ofsix months,
and subsequentlyuntiltheendoftheyear. Thedirecteffectofthesemeasureswastoreduce
retailpricesasawholebyapproximately1.2percent,thoseoffoodproductsby1.3 per cent,
and those ofmanufactures by 1.7 per cent. The long-term loan was for Frs. 6.5 billion;
it wasissued at7 percentandisguaranteedinterms ofaEuropeanunit ofaccount.
2 The direct impact on retail prices oftherisein theprices ofcrude oil attheend of
October 1973 wasestimatedat 0.5 percentforthewholeyear. Thisestimatewas madeon
thebasisofamodelworked out bytheINSEEto assesstheeffects ofthe 1969 devaluation,
using an input-output table covering 79 industries.
France
Diagram 1 Price Trends
CONTRIBUTIONS OF THE VARIOUS COMPONENTS TO TOTAL RETAIL PRICE RISE
(comparedwiththepreviousquarter,atannualrates)
10
Î777A F°°d
9 | | Manufactures,privatesector
Services,privatesector
8
Rentsandmedicalservices
7 Goadsandservîtesinthepublic«actor
e
5
4
3
2
1
OL
105 CHANGES IN RELATIVE PRICES
(1stquarter 1970-100)
104 Food
m*_ Manufacturesintheprivatesector
_ Servicesintheprivatesector
103
m Rentsandmedicalattention
'Goodsandservicesinthepublicsector
102
101
100
97
%
95
94
1970 1971 1972 1973
Source: INSEE,RapportsurlesComptesdelaNation.
7
OECDEconomicSurveys
Table 1 TrendofPrices
1973
Average
1962- 1971 1972
1972 Whole Jan.- April-
year* March1 Sept.1
GDPimplicitpricedeflator 4.6 5.4 5.7 6.9
Implicitpricedeflator
forprivateconsumption 4.5 5.4 5.6 7.2
Generalconsumerprices 4.4 5.3 6.1 7.4 Ï0 iao
Food 4.5 6.4 7.9 6.1 13.6
Manufactures (privatesector) 4.0 4.8 0 7.2
Services(privatesector) 6.4 6.9 5.9 9.9
Rentsandhealthservices 5.9 5.5 3.4 11.9
Publicutilitycharges 5.9 3.6 0.5 6.3
Wholesaleprices
Fuelandpower 3.6 11.1 2.0 -8.1 -0.6
Semi-processedindustrialproducts 3.1 4.0 5.4 12.5 7.9
Industrialrawmaterials 3.2 -2.5 1.6 41.7 24.0
ofwhichimported 3.6 -6.0 1.6 90.3 27.9
Index ofaveragevalues
imports 2.3 3.0 1.0 -13.6 16.1»
exports 3.1 6.0 0.9 15.4 9.4»
Pro. mem.
Consumerprices
Total OECD 3.9 5.2 4.7 9.1 10.1
European OECD 4.4 6.6 6.6 8.5 9.3
Enlarged EEC 4.2 6.2 6.2 8.4 8.4
1 Annualrate.
2 Secretariatestimate.
3 April-August.
Sources:INSEE,BulletinMensueldeStatistiqueandRapportsurleaComptesdelaNation;OECD,Main
EconomieIndicators.
hand, continued their steadyrise at thecomparatively moderate rate ofappro¬
ximately 7.2 per cent per annum. In view ofthis trend, the tendency for the
spread of relative prices to narrow, which had been observed since 1970,
became more marked in 1973. Relative prices of food rose more sharply,
while the relative increase in prices of services in the private sector was less
marked. Those of manufactures in the private sector continued to fall
steadily, while charges for public utilities, which in the long term had been
moving in much the same way as the general price level, dropped behind.
The marked rise in food prices broadly reflects the delayed effects ofthe
rise in agricultural producer prices1 which by July 1973 had risen by some
14 per cent in one year. This trend was mainly due to the increase in agri¬
cultural production costs, to supply shortages on certain markets, and to
pressures of domestic and external demand. Over the period the average
rise in prices ofindustrial products needed by farmers was nearly 9 per cent,
including a rise of 24 per cent for products used as animal feeds. Various
large markets for agricultural and food products suffered from a shortage
1 Although the rise in agricultural producer prices was steep, it was nonetheless ap¬
preciablylessinFrancethaninmost otherMembercountries.