The economy that France’s next president will inherit

Is it as bad as François Hollande’s critics say? The FT examines the data

After five years in office, French president François Hollande will leave the Élysée palace this May as the most unpopular president in recent French history. His poor standing is in part a response to his failure to deliver on promises to revive the economy, curb unemployment and rein in public spending.

But is Mr Hollande’s economic legacy as dire as his ratings slump would suggest? The answer is also important to Emmanuel Macron, the independent centrist candidate in this year’s presidential election, who was Mr Hollande’s economic adviser before being made his economy minister.

The charts below give a measure of the economic and social challenges France and its next leader are facing.

Slow but steady growth

The winner of this year’s election will inherit an economy that has been growing slowly but steadily since the 2008 financial crisis. At the start of his presidency in 2012, Mr Hollande was optimistic France would fully recover from the downturn. However, as the chart below shows, despite modest growth the country has underperformed relative to the likes of Germany, the UK and the US.

Nevertheless, towards the end of Mr Hollande’s term things began to pick up. Growth last year reached 1.1 per cent, the fastest pace during his tenure — though it still fell well below the EU average of 1.8 per cent.

More jobs, mostly temporary

The labour market is a politically charged issue. In 2012, Mr Hollande was voted in on a pledge to boost job opportunities at a time when unemployment was rising.

During his time in office, unemployment continued to creep up to a high of more than 10 per cent, prompting the president — late in his tenure — to take more decisive steps to tackle what he labelled an “economic emergency”. Having already introduced tax credits to reduce labour costs, he bypassed parliament in 2016 to force through a jobs bill that made hiring and firing easier. While protecting the country’s divisive 35-hour work week, he also increased training opportunities and incentives to return to work.

These measures have just begun to bear fruit: unemployment figures have shown only marginal improvements over the past year, though data show that policies encouraging more jobseekers into training have had some success.

But Mr Hollande’s original proposals — some of which caused a backlash on the left — were watered down.

The reforms have so far failed to break France’s two-tier labour market. Last year, 86.4 per cent of total hiring was into temporary jobs — and of those, 80 per cent were for contracts shorter than one month. Meanwhile, long-term unemployment remains stubbornly high: more than 45 per cent of the unemployed in France have been without a job for more than a year, the highest proportion since records began in 2003.

Among the most vulnerable are young people, immigrants and the low-skilled. France’s youth unemployment rate is roughly double that of the UK and continues to rise — in contrast with a decline in most advanced economies. The story is similar for foreigners and those with lower levels of education.

Spending still high

In its 2015 report on the French economy, the OECD concluded: “The fiscal situation is weak, with a chronic deficit, considerable government spending, correspondingly high taxes and rising public debt.”

Mr Hollande was forced to accept greater austerity as his term wore on, proposing public spending cuts and vowing to streamline a state machinery he deemed “too heavy, too slow, too costly”.


But France still has one of the highest public spending ratios among advanced countries — at 57 per cent of GDP. Within that, health, social and pensions expenditure as a share of GDP remain comparatively high and have risen since 2012. Combined with slow economic growth, France’s debt burden has continued to grow.

The fiscal deficit has shrunk under Mr Hollande. This was largely a result of declining interest rates and cuts in public investment, but higher tax revenues also helped.

As there is little room for further tax rises, improvement in public finances under a future president would mean more spending cuts — a message echoed recently by the European Commission.

Corporate taxes eased

Despite attempts at simplification, French companies “are still faced with a high regulatory burden and fast-changing legislation”, according to a recent European Commission report.

While consumption taxes are low, the high tax burden on French business is a potential barrier to investment and company growth. Throughout his term, Mr Hollande has taken small but significant steps to improve this, introducing tax breaks and bringing down the tax wedge — taxes as a percentage of labour costs — by several percentage points.

More broadly, France also adopted the so-called Macron law in 2015, designed to boost competition by allowing shops to stay open for longer, for example.

Still, the relative picture is telling. At 48 per cent, the labour tax wedge was the fifth highest in the OECD in 2015 and French corporation tax remains the highest in Europe.

France’s recent economic growth has been sustained by consumption rather than investment, with the latter not yet reaching the pre-crisis peak. Investment did return to growth last year, but from a low base.

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