Europe Economy

France's economy could see a steep recovery, experts say, but problems remain

Key Points
  • Officials and business leaders in France are looking ahead to a period of recovery and reflecting on the wider outlook for France's political and economic future.
  • France is still in the throes of the coronavirus pandemic as the delta variant spreads rapidly, however.
  • The next presidential election is in April 2022.
A couple, one checking his smartphone, enjoy the view of the Eiffel Tower at sunset in Paris on February 23, 2021.
Ludovic Marin | AFP | Getty Images

France might still be in the throes of the coronavirus pandemic as the delta variant spreads rapidly, but officials and business leaders are looking ahead to a period of recovery and reflecting on the wider outlook for France's political and economic future.

"The rebound is very steep, it's even steeper than last year. So we are quite happy with that," Agnès Bénassy-Quéré, chief economist at the French Treasury, told CNBC Sunday, pointing to the national statistics office raising its growth forecast for France in 2021 to 6%.

"The official forecast is still at 5% for 2021 because we are still cautious about the fall. As you were saying, there is a delta variant, and we have kept some restrictions up to the end of the year. So already in the spring, when this forecast was made, it included some restrictions, light restrictions of the second half of the year. So far, we have not changed this forecast, then we will see what happens when we have to build the 2022 budget," he said, speaking to CNBC's Charlotte Reed while attending an economic forum in Aix-en-Provence.

Of course the Covid-19 pandemic has left a lot of destruction in its wake and no less in France, where over 5.8 million infections have been recorded and over 111,000 deaths to date, according to data from Johns Hopkins University.

Like other countries, France introduced emergency measures to support the economy, businesses and employment during the pandemic and there are now some concerns that the tapering of that support could cause job losses and some firms to shut down.

Bénassy-Quéré said the government had been "very cautious about that," but that the labor market was currently resilient.

France's economy is seeing a "steep" rebound, chief economist says
France's economy is seeing a "steep" rebound, chief economist says

"There is a tapering, phasing out of the support, the emergency support, which is gradual over the summer. And there will still be some support, for instance [the] long-term unemployment scheme, which will still be in place in the fall for such activities as [the] aircraft industry, where we really want to keep the skills in the industry, and so there will be some reskilling programs."

However, he noted that while activity in some industries was already above a pre-crisis level, some are lagging behind, such as tourism. As well as an unequal recovery, another problem for the government is that huge amounts of borrowing has pushed up France's debt pile to a record high. Earlier this year, France's national statistics office Insee reported that government debt stood at 115.7% of GDP at the end of 2020, up from 97.6% in 2019.

How France will pay down that debt pile is uncertain for now as there's little prospect of the government, under President Emmanuel Macron, raising taxes just 10 months ahead of a presidential election. Whether Macron will go ahead with ambitious (and unpopular) reforms to modernize and simplify France's lumbering pension system is also uncertain given the pandemic situation.

So far, two rounds of regional elections in recent weeks have dispelled expectations that the far-right National Rally party — formerly known as National Front — could perform well in the national vote next year after a poor showing in the regions. Voter turnout was low in both rounds, leading some analysts to voice concern over the extent of voter disaffection in France.

Also attending the economic gathering at Aix-en-Provence, Valérie Rabault, president of the Socialist Group at the National Assembly told CNBC Sunday that "French society is broken" as evidenced by the low turnout in the regional votes.

"We had local elections and less than 35% of people went to vote, so this is very low. This was the first time in France that we have so few people going to vote for local elections. For me, it does reflect ... a kind of indifference from the people to build up a common project for France, for the society, and this is the big challenge for us as politicians to be able to tackle this issue and to have [a] more positive message after the crisis," she said, adding "we need to define something, a common project that would be able to unify people."

Structural problems

Business leaders attending the economic forum in Aix-en-Provence told CNBC that there are structural problems that remain in France that are not so easily fixed.

"The divides that have existed in French society are still there whether it is the territorial divide, the generational divide and the very low percentage of people voting like we saw in the last election," Pierre-André de Chalendar, chairman of French construction materials group Saint-Gobain, told CNBC Saturday.

"The priorities are clear, (they are) energy transition, re-industrialization — which is the best way to crack this territorial divide — and putting more emphasis on the youth, on education. The question is how we do that and I think in France the issue is that the state, overall, is too big and is not efficient enough."

Ross McInnes, chairman of Safran, agreed that "two important structural issues" should be addressed in France, with the main one being the quality of education in France.

"On education, our school system has failed us, collectively," he told CNBC. "One hundred thousand young French people ... leave secondary school without good maths, you know, the three 'Rs' of reading, writing and arithmetic. And that is something we urgently have to fix. Otherwise, companies are not going to be able to recruit people of talent for good jobs."