Once upon a time, just few years back, France was often dubbed “the sick man of Europe” due to its economic stagnation and high unemployment rates.
However, recent economic data reveals a stark transformation, with the French economy exhibiting growth while its European neighbor, Germany, faces challenging economic headwinds. In this article, we delve into the factors behind France’s economic resurgence, emphasizing the role of rapid reforms and resilience.
Swift Reforms and Structural Advantages
France’s economy expanded by 0.1% in the third quarter of 2023, following a strong 0.6% growth in the previous quarter. Experts attribute this success to France’s proactive measures over the past few years. Philippe Crevel, an economist and the head of the Paris-based think tank Cercle de l’Epargne, points out that French companies’ significant sales of cruise ships and planes have contributed to this growth. Additionally, the country’s large service sector, particularly in tourism, has flourished, distinguishing it from Germany’s industrial-oriented economy.
Impact of Germany’s Economic Challenges
In contrast, Germany, traditionally reliant on a robust industrial sector and exports, faces obstacles in the form of stagnant international commerce and trade disputes between China, the US, and the EU. High energy prices and the cessation of Russian pipeline gas imports due to the Ukraine conflict further strain the German economy. France’s access to affordable nuclear energy, which accounts for approximately 70% of its electricity production, provides a significant advantage.
Resilience and Economic Performance
Anne-Sophie Alsif, chief economist at Paris-based auditing consultancy BDO, highlights the resilience of France’s economy, which heavily depends on household consumption. Despite recent crises, domestic demand has remained relatively stable. France’s adept handling of the global COVID-19 pandemic and energy crisis, with prompt subsidies and government support, has been instrumental in maintaining economic stability.
Impact of Macron’s Reforms
President Emmanuel Macron’s ambitious reform agenda has played a pivotal role in France’s economic resurgence. Reforms such as corporate tax reduction, labor market liberalization, unemployment insurance reforms, and pension reform have improved the economic landscape. Macron’s policies have also had a positive impact on France’s unemployment rate, which is currently at its lowest point in two decades, standing at 7%.
Germany’s Economic Challenges
Catherine Mathieu, an economist at Paris-based Sciences Po University’s economic observatory OFCE, emphasizes that the recent performance of the French economy is not a testament to it being a model student, but rather an indication of Germany’s underperformance over the past few years. While France’s GDP growth stands at 1.7%, Germany lags behind with a mere 0.2% growth.
Economic Structure and Industrialization
France’s journey towards economic rejuvenation mirrors some of Germany’s strategies, focusing on renewed industrialization. Differently structured economies within the Eurozone, such as those of France and Germany, are essential to prevent synchronized recessions across the region.
Challenges on the Horizon
Despite its economic success, France faces challenges, particularly concerning its growing public debt, which has exceeded €3 trillion, equivalent to 112.5% of GDP. The annual budget deficit of around 5% surpasses the 3% deficit ceiling set by Brussels. While the economists do not foresee an immediate risk of bankruptcy, the mounting debt could have long-term consequences, potentially necessitating austerity measures and impacting political stability.
France’s remarkable economic turnaround serves as a testament to the effectiveness of swift reforms and resilience in the face of crises. Macron’s bold policy changes have bolstered the country’s economic prospects, and its adaptation to shifting economic landscapes has positioned it well for future challenges. However, France must tread carefully, keeping an eye on its escalating public debt to ensure continued stability and prosperity.