France economy

The French economy after five years under Macron

French President Emmanuel Macron finally entered the electoral campaign in March, vying for re-election after five crisis-laden years for France, Europe and the world beyond. Having looked at Macron’s record on foreign affairs last week, FRANCE 24 now takes a look at how the centrist measured up on the economy during his tenure.

To listen to Macron’s supporters, it is in the economy that the outgoing president’s record shines the most. The attractiveness of the French economy for businesses, its competitiveness, its performance in terms of growth, employment and purchasing power – everything is rosy, Macron told French voters in an open letter on March 3 declaring his candidacy for a second term in April.

How close is this campaign pitch to reality? As is often the case in economics, it all depends on one’s point of view. Macron came to power in 2017 with an overarching economic goal: to “liberate labor and entrepreneurship”, as his platform pledged, to foster growth, reduce unemployment and boost purchasing power. the French.

To achieve this, Macron – a former investment banker who had served as economy minister under socialist President Francois Hollande – promised deep economic reforms, to bring about concrete change in France and transform foreign investors’ perception of the economy. economy of the country.

For businesses, Macron cut the corporate tax rate from 33.3% to 25%, cut labor costs by turning a €20 billion-a-year tax credit into a permanent reduction in social contributions for employers. He also had the French labor code amended to help companies by facilitating layoffs. For individuals, Macron abolished the wealth tax (wealth taxor ISF) and created a one-time lump sum levy on capital gains to stimulate investment in businesses and the real economy through trickle-down effect.

Five years after Macron’s election, the raw numbers are relatively flattering. GDP growth, for its part, reached 7% in 2021, according to an initial January estimate from the French statistics office, Insee. This exceptionally high figure represents the rebound enjoyed by the French economy after a historic decline (-8%) during the 2020 pandemic-induced recession, although France’s subsequent rebound was one of the most robust. of all euro area countries. France’s unemployment rate, meanwhile, fell to 7.4% in the fourth quarter of 2021, a figure not seen since 2008.

France’s image abroad and its attractiveness to foreign investors have also seen considerable gains. Macron’s La République en Marche party boasts that France has become Europe’s most attractive country for investors during the incumbent’s tenure, with France registering 985 foreign investment projects in 2020, compared to 975 in the UK. United and 930 in Germany, according to the attractiveness of EY Consulting. index.

Declining job security and quality

And yet, these good results only tell part of the story, particularly with regard to France’s attractiveness and the country’s ability to compete on a global scale. France’s trade balance, in particular, remains a major concern with its foreign trade deficit which increased further by 7.3 billion euros in 2020 to reach 65.2 billion euros.

The country’s unemployment rate has also fallen mainly on the basis of an increase in the precariousness of the employment of employees. To boost recruitment, France sought to reassure companies that they could indeed abandon hiring in the face of adversity, in line with the 2017 reforms. As a result, companies were offering insecure jobs more frequently ( short-term contracts, interim, etc.). In 2020, 3.3 million people in France held precarious jobs, or some 12.4% of total employment, according to INSEE. But above all, the modification of the labor code led to the establishment of a scale of industrial tribunal compensation in the event of dismissal without real and serious cause. Employers can now dismiss without reason, that is to say without respecting the law, and know in advance how much these dismissals will cost them.

Beyond an increase in job insecurity, Macron’s five-year term has also been notable for its reduced job quality for workers. Investigative news site Mediapart reported that the average number of hours worked fell from 32 hours per week in the second quarter of 2017, when Macron was elected, to 30.9 hours per week in the third quarter of 2021. Part of this decline is due to the Covid-19 crisis, but it was also a sign of a qualitative change in the workforce employed. Many of the openings created are low value-added business service jobs. In January, the government boasted that 2021 had seen the creation of almost a million businesses in France – “simply a historic record”, said Economy Minister Bruno Le Maire. But 641,543 of these businesses were what are known as micro-enterprises (formerly auto-enterprises), small businesses created by and for an individual entrepreneur.

And finally, France had 1.9 million people who were no longer actively looking for a job in 2020, people thus excluded from the count of the country’s unemployment figures. As economist Maxime Combes pointed out on Twitter, the 7.4% unemployment rate is also a function of the number of jobseekers taken off the count, a figure that rose rapidly after a pandemic-related hiatus. 2020. Similarly, Macron’s unemployment insurance reform, fully implemented as of fall 2021, could reduce the number of job seekers registering with Pôle emploi, the unemployment insurance agency, because of a higher threshold of conditions required to claim it, believe the specialists.

The rich have gotten richer, but business investment is elusive

Fiscally speaking, while financial aid to companies and other tax breaks have not been evaluated recently, it has been shown that tax cuts for the wealthiest have had no impact on business investment. “Observing the important economic variables – growth, investment, household financial investment flows, etc. – before and after the reforms, is not enough to judge the real effect of these reforms. In particular, it will not be possible to estimate, by this means, on its own, whether the abolition of the ISF has led to a reorientation of the savings of the taxpayers concerned towards the financing of companies”, concedes France Strategy, an institution under the supervision of the first minister, in an October 2021 report assessing tax reform on Capitale.However, the same report notes that Macron’s reforms led to a 64% increase in dividend payments in 2018.

The wealthiest French people have therefore not chosen to invest in the real economy, even though their purchasing power has jumped over the past five years. As such, they are the big winners of Macron’s mandate. According to a November 2021 study by the French Institute for Public Policy (IPP), the richest 1% of individuals in France recorded an average gain of 2.8% in their total income after taxes and benefits. The total increase is even more striking for the country’s richest 0.1%, who saw their purchasing power jump by around 4%.

For the rest of the French population, some of whom took to the streets of the country in revolt in a long and fiery series of yellow vest demonstrations during Macron’s tenure, the trickle down effect has come in drops and drops. According to the IPP, the overall average increase in the standard of living of all French people over the past five years is around 1.6%. The least favored, the 5% of the poorest households in France, were the biggest losers: their purchasing power fell by 0.5% on average during the incumbent’s term of office.

This is the second installment in FRANCE 24’s series on Emmanuel Macron’s record as French president, following last week’s look at his foreign policy. This article has been translated from the original in French.

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