After just one year it is still too soon to make a full assessment of the Macron presidency, so the question we must answer is whether the measures taken by his government over this first year are the rights one to tackle the changes we have witnessed worldwide.
In part 1 of this series, I outlined the need to make growth more self-sustaining, even in a context of ongoing globalization. I described the need to raise the innovation aspect in our investment, and the necessity of making the labor market more adaptable to better address change. Recent research by Gilbert Cette et al uses a broad international comparison to suggest that high employment protection legislation in France leads to capital-to-labor substitution. This would explain high investment levels in France. However, the authors note that the innovation component of this investment is inadequate and does not sufficiently bolster productivity. Another conclusion of the report is that a more flexible labor market means higher quality capital.
And this equation lies at the very core of the supply question in France: capital needs to be more efficient, while the labor market needs to be more flexible in its ability to adapt. I noted in part 1 that steps taken to support public investment along with government labor market decrees help ease these restrictions and promote an adjustment in supply.
But we have seen two other watersheds in the world economy that the French economy must now address if it is to further integrate i.e. the location of production and the location of innovation.
The second shift is the geographical location of production. Continue reading
This month marks Emmanuel Macron’s first anniversary as President. It is too soon to make a full assessment of his presidency, as he has already said himself that he wants to be judged on the full five-year term, but it is also too early to make that call because the very positive economic outlook overall could skew our analysis somewhat. Business indicators in France followed trends in the euro area, displaying a robust performance followed by a downturn.
The latest example of this is this year’s first quarter growth figure, which slowed to 0.3% in France and 0.4% in the euro area, after the country posted showings in line with its European neighbors in 4Q 2017 at 0.7%. Business leader surveys also reveal similar findings.
Economic policy still to show its mettle
It is still too early to sift out the effects of the government’s economic policy from the impact of the overall economic context, and in this respect, 2018 budget performances will provide a useful benchmark. The budget deficit came out at 2.6% in 2017, falling below the infamous 3% mark for the first time since 2007, primarily as a result of growth picking up from 1.1% to 2% between 2016 and 2017. Growth is expected to come out at 2% in 2018, flat vs. 2017, so it is government policy that will shape public finances this year and the public deficit will act as a good gauge of policymakers’ achievements.
However, there is one thing that has most definitely changed over the past year – the way the international community talks about France and its President, both investors and others. International spectators are more interested in the country, reflecting on the one hand the arrival of this newcomer bursting onto the world political stage, and on the other his active international involvement, particularly in promoting Europe. Continue reading
Which side will win out in the current confrontation playing out across the world? The inward-looking attitude that has been so widespread these past months aims at taking power back locally. Meanwhile, the more cooperative approach involves joining forces to address global challenges and is based on continued dialogue. The choice between these two world views will be the key challenge for 2018.
The world is no longer quite so unanimous in its enthusiasm for globalization.
The cooperative dynamics we saw before the 2008 crisis are no longer the dominant force, and this shift was laid bare during the various elections and the referendums of recent times, as globalization and its cooperative approach did not lead to even distribution of wealth, particularly in developed countries. Branko Milanovic’s famous elephant curve was often held up as an example to demonstrate that the most badly off workers in the western countries had paid the price of globalization and swift growth in emerging countries, such as China and India. Continue reading