Eric Heyer, director at the French Economic Observatory (OFCE), presents his forecasts for the year 2018.
Growth and Unemployment
“The economic upturn is expected to continue with growth that I estimate to be between 1.7 and 1.8%. It will be a bit better than 2017. This is the confirmation of a weak recovery which remains otherwise disappointing. It is driven by job creation and investments. It’s a well-perceived recovery, which fosters confidence and therefore hiring.”
“However, be cautious regarding unemployment; the level will decrease but remain high. The decrease is expected to be 0.2 points in 2018. There will still be job creation in 2018 but less than in 2017, and this is linked to decisions by this government: the elimination of subsidized jobs, the cessation of hiring bonuses, for example, or the continuation of the CICE at an unchanged cost. Unemployment will decrease but at a slow pace, and this may not necessarily be perceived by the public, especially since there are about 130,000 new net entrants into the job market.”
10 years after the subprime crisis?
“There are still scars in terms of unemployment. When the crisis hit worldwide, the unemployment rate was 6.8%; today we are still at 9.5%. We have not yet returned to the pre-crisis level.
By the end of the five-year term, according to our projections, we will still not have regained the pre-crisis rate. Even in 15 years, it may still be challenging. In terms of GDP, we have a GDP higher than before the crisis, but in terms of GDP per capita, we have just returned to pre-crisis levels. This means that the wealth produced per inhabitant is back to its pre-crisis level, but today we are more productive than before, thanks to technology, so we need fewer people to produce the same output. In terms of public debt, we are 30 points above pre-crisis levels, and we have a deficit level that is roughly comparable.”
Dangers in France?
“There are quite traditional bubbles that could be worrying, a financial bubble or a real estate bubble could burst and bring us back to 2008-2009. These are not uniquely French bubbles, as the crisis 10 years ago has already shown us. The nature of bubbles is that they are difficult to detect, and we do not know when they will burst. What we can say is that today in France, there is slightly a bubble at the stock level. It is weaker than the one in 2008, it could burst but without necessarily triggering a crisis. Furthermore, the more negative aspect is that we have less leeway with public finances that are more deteriorated worldwide. These are risks that are currently under control without consequences in my opinion, within the next two years.”
Inflation?
“There are always certain risks. Inflation is very low almost everywhere in the world, even in countries with full employment, which is quite surprising. However, there is the possibility of significant increases. In France, it is the prices of real estate and housing that are high and increasing at a fairly steady pace. We are reaching levels that become problematic for a part of the population. This upward trend should not stop, and the economic and political decisions are not up to the challenge.”
The challenges of 2018
“In 2018, there is a budgetary challenge. The government has done everything to get below the 3% threshold. It’s more of a political than economic challenge because it would allow France to no longer be in the excessive deficit procedure and thereby switch from a corrective to a preventive approach and thus have more leeway, more flexibility to pursue a more ambitious economic policy. In all likelihood, we should be below 3%, but very close, meaning we should be at 2.8%. It’s like unemployment; it is decreasing, but so slowly that a simple minor incident could call into question this very fragile balance.”
