In the fourth quarter of 2019, activity contracted by 0.1%. Over the past year as a whole, GDP grew by only 1.2%, after 1.7% in 2018.

This is a warning shot: France is not immune to the effects of the global economic slowdown. In the fourth quarter of 2019, and to everyone’s surprise, activity contracted by 0.1%, following growth of 0.3% in the previous quarter. For the year as a whole, GDP growth was limited to 1.2%, marking a real deceleration from the 1.7% growth in 2018 and 2.4% in 2017.

December and its strikes therefore finally had a much stronger impact on the French economy than expected. The decline in GDP is due to massive destocking by industry (-0.4%), which reflects a slowdown or even a halt in production. “Some infrastructures such as ports, the rail network and fuel depots have been disrupted. Faced with these supply difficulties, industrial production fell in December and enterprises had to draw on their stocks to meet demand”, reacted the Minister of the Economy, Bruno Le Maire, on Friday 31st January.

“The perception of increased uncertainty in the coming months both locally and globally has prompted business leaders to both reduce inventory to contain costs and postpone investments,” says Philippe Waechter, Chief Economist at Ostrum Asset Management.

The slowdown in 2019 is clearly due to the international trade tensions that have affected the country’s main economic partners, first and foremost Germany. Germany, whose automotive industry has been particularly hard hit, is expected to grow by only 0.6% in 2019, after 1.5% in 2018.

Relief from social security charges

Compared to its neighbours, France benefited last year from the purchasing power measures taken at the end of 2018 in response to the “yellow jackets” crisis, i.e. 17 billion euros (including 10 billion devoted to supporting purchasing power). As a result, household consumption held up rather well over the year as a whole.

Businesses, for their part, have taken advantage of the transformation of the tax credit for competitiveness and employment (CICE) into reductions in social security contributions to invest and hire. Indeed, with 263,000 net job creations in 2019 “an exceptional performance”, according to Patrick Artus, Chief Economist at Natixis, growth has largely translated into jobs.

All economic sectors and all regions have benefited, and the jobs themselves are of better quality: permanent contracts are increasing, while terminations of fixed-term contracts and temporary assignments are decreasing. “We may be witnessing a labour retention effect, which may also help to explain the employment dynamic,” says Denis Ferrand, CEO of Rexecode. Given the recruitment difficulties in certain sectors, companies may indeed hesitate to part with employees they have had difficulty finding.

Despite significant gains in purchasing power, the French, still very cautious, continue to save more than necessary. “The savings rate is around 15%, whereas it should be around 14%. “This is probably because they feel that today’s tax gains could be taken back tomorrow. “Another explanation is the drop in interest rates (and therefore investment income), which means that the French are not rounding out as much as they had expected or hoped. “In this case, there may be an income effect, i.e. more money is saved to compensate for the lower return.

Low inflation rate

However, according to the economists interviewed, the French should loosen the purse strings in 2020 and consume more. Already, purchases of durable goods have seen a net rebound (2.5%) since June 2019, and the trend is expected to continue. Another encouraging sign is that the household morale index rose by two points in January 2020, almost erasing December’s decline due to strikes.

This is reason to remain relatively optimistic for 2020. For Bercy, December’s disappointment “does not call into question the fundamentals of French growth, which are solid”. Provided that the slowdown remains temporary. “The question is whether this industrial behaviour is specific to France and linked to strikes, or whether it is common to all European countries.

Reassuringly, industrial indicators rebounded slightly in January in France, and the positive investment trend seems to indicate that “companies are not projecting themselves into a lasting bad situation”. The other unknown is the inflation rate, which remains low in relation to wage increases. It is as if firms are not passing on rising costs to their prices, thereby cutting into their margins, a situation which is untenable for them in the long term, but rather favourable to consumers in the short term.

The final question mark relates to the potential impact of the coronavirus epidemic on the global economy. The duration of this health crisis and its impact on China, the world’s second largest economy, raises the spectre of an even more pronounced slowdown than expected in 2020. Before the crisis broke out, the Banque de France was banking on growth in France being limited to 1.1% this year.