France Business Forecast Report Q4 2013

Date: July 24, 2013
Pages: 49
Price:
US$ 1,195.00
Publisher: Business Monitor International
Report type: Strategic Report
Delivery: E-mail Delivery (PDF)
ID: F1E16A743EFEN
Leaflet:

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Core Views

France’s economy is showing signs of a sharp economic slowdown in light of the deteriorating global macroeconomic backdrop, and, while a return to recessionary conditions remains outside of our core view for now, we note that the French economy, and in particular the domestic banking sector, is highly susceptible to a further intensification of the eurozone sovereign debt crisis.

We expect pressures on the government to engage in more concerted fiscal consolidation to mount over the coming quarters, particularly as lower growth begins to translate into lower government revenues. While France has thus far not fallen prey to the bond vigilantes such as the peripheral countries of the eurozone, the country nonetheless has one of the largest public sector debt piles in Europe and remains susceptible to contagion effects.

Major Forecast Changes

We have revised down our 2013 real GDP growth forecast for France to -0.3%, from a previous forecast of 0.4% on the back of our expectations for a weaker household segment and slowing external demand. In line with our recent downward growth revisions, we have downgraded our projections for France’s fiscal deficit, and now forecast the government will miss its 3.0% of GDP target in both 2013 and 2014. We expect the budget deficit to arrive at 4.0% of GDP in 2013 and 3.6% of GDP in 2014, from a previous forecast of 3.8% and 3.4% respectively. In addition, we are seeing increasing risks that the government debt/GDP ratio is reaching levels that will begin to impinge on long-term growth.

Key Risks To Outlook

Downside Risks To Fiscal Forecast: The possibility of a further intensification of the eurozone sovereign debt crisis and the potential need for state-led capital injections in the domestic banking sector keeps the risks to our fiscal deficits over the medium term firmly to the downside.

Rising Debt Loads Could Weigh On Growth: We see continued hazards to the fiscal outlook on the horizon, including the potential for interest rate shocks, further fiscal slippage and a stagnant growth environment, and caution that the next 24 months will be extremely important in determining France’s long-run debt trajectory.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

CHAPTER 1: POLITICAL OUTLOOK

SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Odds Of Major Reform Still Slim
Facing the worst approval ratings of any president of the Fifth Republic as the French economy continues to stagnate, François Hollande has begun to adopt increasingly reformist rhetoric. Nonetheless, we expect Hollande's ability to push through structural reforms will be severely curtailed by divisions within his own party and core support base in addition to resistance from the proliferation of special interest groups, which will make unilateral reform a troublesome and compromised process.
  Table: POLITICAL OVERVIEW
Long-Term Political Outlook
A Tumultuous Decade Could Lie Ahead
We expect several dynamics to come to the forefront of France's political scene in the coming decade. These include France's role in the world, economic reforms, the challenge of demographics and the potential resurgence of left-wing parties after years in the political wilderness.

CHAPTER 2: ECONOMIC OUTLOOK

SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Further Stagnation Ahead
From a medium-term perspective, the lack of economic reforms (particularly with regards to the labour market and tax system) remains the main impediment towards robust real GDP growth, restricting growth in both the household segments (through sticky unemployment and lower purchasing power) and net exports (high labour costs driving lack of export competitiveness). Over a shorter time horizon, the government's inability to pursue expansionary fiscal policy due to EU budget targets and weak demand for exports from major trade partners (primarily in the EU) will cause sustained economic stagnation.
  Table: ECONOMIC ACTIVITY
Fiscal Policy
Deficit Struggling With Weaker Growth
In light of stagnant economic activity and lower than expected inflation, we have further downgraded our fiscal deficit forecasts for France, which we expect to arrive at 4.0% of GDP in 2013, from a previous forecast of 3.8%.
  Table: FISCAL POLICY
Balance Of Payments
Labour Market Rigidities An Ongoing Problem
France's labour market rigidities continue to stifle export competitiveness, while the government's relatively modest implementation of austerity measures and low household leverage has sustained imports since the financial crisis. While we expect to see a modest narrowing of the current account deficit in 2013, consolidation will remain off the cards until France undertakes a major reform of its labour markets.
  Table: BALANCE OF PAYMENTS (EURO)
  Table: LABOUR MARKET FLEXIBILITY INDICATORS
  Table: ACCOUNTING BREAKDOWN OF THE TRADE BALANCE, 1997-2011 AND 1997-2008, PP GDP
Regional Balance Of Payments
Rebalancing: Eurozone Risks Shifting From One Bad Equilibrium To Another
Both internal and external trade rebalancing have gained traction in the eurozone. However, both forms of rebalancing are suboptimal and risk anchoring the euro area to a lower and more unstable economic growth trajectory over the medium to longer term.

CHAPTER 3: 10-YEAR FORECAST

The French Economy To 2022
A Difficult Decade
The French economic model is looking increasingly threatened over the coming decade, with tepid growth, rising debt loads and persistent unemployment expected to characterise the country's long-term outlook. Despite this somewhat bleak prognosis, we highlight that we expect France to outperform relative to most of its regional peers.
  Table: LONG-TERM MACROECONOMIC FORECASTS

CHAPTER 4: BUSINESS ENVIRONMENT

SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
  Table: BMI BUSINESS AND OPERATION RISK RATINGS
Infrastructure
  Table: BMI LEGAL FRAMEWORK RATING
Market Orientation
  Table: LABOUR FORCE QUALITY
  Table: TOP EXPORT DESTINATIONS (US$MN)
  Table: TRADE AND INVESTMENT RATINGS
Operational Risk
CHAPTER 5: KEY SECTORS
Telecommunications
  Table: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA & FORECASTS
  Table: TELECOMS SECTOR – MOBILE – HISTORICAL DATA & FORECASTS
  Table: MOBILE MONTHLY BLENDED ARPU – HISTORICAL DATA & FORECASTS (EUR)
  Table: TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS
Pharmaceuticals
  Table: GENERICS DRUG MARKET INDICATORS, HISTORICAL DATA & FORECASTS
  Table: OVER-THE-COUNTER (OTC) MEDICINE MARKET INDICATORS, HISTORICAL DATA & FORECASTS
  Table: PRESCRIPTION DRUG MARKET INDICATORS, HISTORICAL DATA & FORECASTS
Other Key Sectors
  Table: OIL & GAS SECTOR KEY INDICATORS
  Table: DEFENCE & SECURITY SECTOR KEY INDICATORS
  Table: INFRASTRUCTURE SECTOR KEY INDICATORS
  Table: FOOD & DRINK SECTOR KEY INDICATORS
  Table: AUTOS SECTOR KEY INDICATORS
  Table: FREIGHT SECTOR KEY INDICATORS
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
Growth Has Troughed
  Table: GLOBAL ASSUMPTIONS
  Table: DEVELOPED STATES, REAL GDP GROWTH,%
  Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS,%
  Table: EMERGING MARKETS, REAL GDP GROWTH,%
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