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Reforming the French economy will prove difficult

Monday, June 13, 2016

Subject

France's economic outlook.

Significance

France's growth is showing signs of revival. In the first quarter, it was supported by household consumption, which contributed 0.6 percentage points (pp) to a quarterly GDP rise of 0.6%. The second-largest contributor was fixed investment by non-financial corporations (0.3 pp), while net trade and inventories detracted 0.2 pp each. On a year-on-year basis, GDP expanded by 1.3%, compared with 1.2% in 2015. Employment is rising, although the unemployment rate remains high, at 10.2%.

Impacts

  • Inflation will stay subdued this year and accelerate slightly in 2017.
  • The short-term impact of the labour disputes on the economy and policy-making will be limited.
  • In the long term, a withdrawal of the labour reform would undermine support for reformist trade unions.
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