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Paris Europlace, New York : 18 April 2018
France and Europe: economic developments, reforms and attractiveness
François VILLEROY de GALHAU, Governor of the Banque de France
2
EURO AREA: FROM THE RECOVERY TO AN EXPANSION PHASE
Robust growth across countries
Sources: Eurostat
-3%
-2%
-1%
0%
1%
2%
3%
4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2010 2011 2012 2013 2014 2015 2016 2017
Domestic demand
Net exports
Change in inventories
GDP growth (y-o-y)
Domestic demand to support growth
Sources: Eurostat
88
92
96
100
104
108
112
88
92
96
100
104
108
112
2006 2008 2010 2012 2014 2016
Euro area France Germany
Italy Spain
3
EURO AREA: LABOUR MARKET BACK TO ITS PRE-CRISIS LEVEL
Almost 8 millions jobs added since 2013Q2 Large fall of the unemployment rate
Sources: Eurostat
0m
1m
2m
3m
4m
5m
6m
7m
8m
0m
1m
2m
3m
4m
5m
6m
7m
8m
2014 2015 2016 2017
7%
8%
9%
10%
11%
12%
13%
7%
8%
9%
10%
11%
12%
13%
2000 2005 2010 2015 2020
Sources: Eurostat + March 2018 ECB Projections
4
FRANCE: ROBUST GROWTH SUPPORTED BY BUOYANT DOMESTIC DEMAND AND DYNAMIC NET EXPORTS
GDP growth and its components (%/pp)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2010 2012 2014 2016 2018 2020
GDP growth
Private consumption
Private investment
Public demand
Net exports
Inventories
Sources: Insee + March 2018 BdF Projections
5
FRANCE: IMPROVING LABOUR MARKET
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
2010 2012 2014 2016 2018 20201.0
1.5
2.0
2.5
3.0
3.5
4.0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2012 2014 2016 2018 2020
Unemployment rate Wage growth (private sector)
Sources: Insee + March 2018 BdF Projections Sources: Insee + March 2018 BdF Projections
6
EURO AREA INFLATION: PROGRESS TOWARDS THE TARGET
Deflationary risks have disappeared
Sources: Eurostat
-1
0
1
2
3
4
-1
0
1
2
3
4
2006 2008 2010 2012 2014 2016 2018 2020
Phillps Curve Simulated
HICP Headline
ECB Projections (March 2018)
Sources: Eurostat, ECB, BdF calculations
Gradual return to target in the medium term
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2013 2014 2015 2016 2017 2018
Headline inflation, Euro area
Core inflation (excluding food and energy), Euro area
Last data: March 2018
7
INSTRUMENTS OF UNCONVENTIONAL MONETARY POLICY: A ‘QUARTET’ OF MEASURES
1. Liquidity provision
Fixed-Rate Full Allotment (since October 2008)
TLTRO-I (launched in June 2014);
2. Forward Guidance (since July 2013);
3. Negative rates on the deposit facility (since June 2014);
4. Asset Purchases Programme (since January 2015), €60 billion monthly, at least until Sep. 2016.
- Extensions -
March 2016: cut of the deposit facility rate = -0.4%; monthly purchases to €80 billion; TLTRO-II (€760 billion as of Sep. 2017)
December 2016 : APP extended at least until Dec. 2017, an additionnal € 60 billion/month.
October 2017: APP extended to end of Sep. 2018, €30 billion/month; reinvest the principal payment for an extended period of time… for as long as necessary; liquidity provision (the main refinancing operations + TLTRO) as long as necessary and at least until the end of the last reserve maintenance period of 2019.
Total APP holdings (March 2018) ≈ €2.37 trillion, will increase up to €2.55 trillion by end of Sep. 2018.
8
THE PAY-OFFS OF REFORMS IN THE EURO AREA
GDP, cumulated growth over 2014-2017 (%)
*except Ireland.
Employment, cumulated growth over 2014-2017 (business sector, %)
ONGOING REFORMS FOR A BETTER-FUNCTIONING LIFELONG TRAINING AND APPRENTICESHIP SYSTEM
10
Sources: Apprenticeship: Germany: BiBB ; France: INSEE ; Italy: Report Cedefop Italy ; unemployment data: Eurostat.
An ambitious labour market reform was recently implemented: • Widen the negotiation space given to social
partners for decision-making
• Simplify staff-representation obligations: Enlarge the negotiation field and hence ease compromise
• Reduce the uncertainties of labour disputes and better secure labour relations
• Should give more flexibility and reduce uncertainty for firms
Important reforms are also on the way to better adapt worker skills to the needs of firms • A reform of lifelong training (currently inefficient) • A reform of apprenticeship (to make it more attractive for firms and young people) • A reform of insurance benefits (to increase labour force participation)
ONGOING REFORMS TO SUPPORT PUBLIC AND PRIVATE INVESTMENT
11
Private investment rate is expected to remain high:
It has already exceeded the previous peak seen in 2008 and should continue to increase over the projection horizon, reaching 22.8% by end-2020.
The introduction of flat tax on capital gains and dividends and the reduction of corporate income tax should support this positive investment trend 17
18
19
20
21
22
23
17
18
19
20
21
22
23
1995 2000 2005 2010 2015 2020
Corporate investment rate
(% of private value added)
An important public investment plan
Spanned over 2017-2022
In key areas for the future
Energetic transition, digital, infrastructure
Source: BMPE
12
POSITIVE CONFIDENCE REINFORCES FRENCH ATTRACTIVENESS
Source: IPSOS; survey on attractiveness among executives of foreign firms in France
96
98
100
102
104
106
108
96
98
100
102
104
106
108
2015 2016 2017 2018
Business sentiment in manufacturing
Source: Banque de France monthly survey in manufacturing100= long term average
Source : Deloitte