News

Bruno Cavalier
Chief Economist at ODDO BHF

Are the French riven with anxiety as media reports persist in telling us at a time when pension reform, strikes and demonstrations continue to hog the headlines? Are they confident in their spending capacity and future financial situation as the monthly survey from the national statistics bureau suggests? Leaving aside perception, a number of objective facts should be borne in mind. Unemployment is on a clear downtrend since 2016. Inflation is low. Fiscal choices have been recalibrated in response to the “Yellow Vests” to support disposable income. All of this should normally be favourable to a firming of consumption.

The fortnight’s focus

Blind panic seized French households end-2018 as the “Yellow Vests” movement took hold. In the space of two months, spending intentions for durable goods had fallen to almost the same low level as end-2008, i.e. the depths of the financial crisis. The reaction was exaggerated but it corrected rapidly (chart lhs). Over the past few weeks, the social climate has deteriorated further, with public transport drastically reduced or at a standstill to mark trade union opposition to the proposed pension reform (see p.2). This type of disruption can temporarily impact some sectors but never leaves a durable mark on employment or growth. This will not strike down France’s economy.

What is households’ situation? 2019 was marked by a certain weakness in personal expenditure, one point lower than the increase in purchasing power, but also by a recovery in investment-housing expenditure¹. This is more a sign of optimism than anything else. In short, households have so far saved what they had received in income support measures². Unless one assumes that the desired level of savings has increased structurally, household spending is expected to strengthen over time. The traditional determinants of consumption appear to be positive. After the “Yellow Vests” crisis, the government acknowledged that its initial objectives for reducing the public deficit were postponed. It is not going to change tack and hike taxes as Emmanuel Macron has entered the second half of his term. Moreover, labour market conditions remain very favourable (chart rhs). The rate of job creation is brisk, >250,000 per year since 2016. It will probably slow down, but it still would be enough to extend the decline in unemployment. INSEE and Banque de France agree on this point, despite their conservative growth forecasts. Consumption should accelerate in 2020.

¹ See our Focus-France of 8 October 2019: "The French are moving house" 
² The main measures were the reduction in the council tax, the cancellation of the rise in the CSG social security tax for pensioners and of tax hikes on fuel, the exemption of overtime from tax and social contributions.

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