Purchasing power, debt and jobs – the impossible French equation

This post is available in pdf format Forbes-23-01-2019-PW-en

Careful observation of the French economy provides some insight into the swift escalation in social unrest since November. The initial question of purchasing power sparked off the movement in November. At the start of the financial crisis, purchasing power was not too severely hit initially due to the hefty impact of automatic stabilizers, i.e. economic mechanisms that help even out the effects of shocks over time via redistribution. This system had worked fairly well in the past, keeping GDP fluctuations down during economic downturns. This is one of the key aspects of the French redistributive model.
With a continued weaker macroeconomic situation than in the past, the economy adapted. Three major changes can help shed some light on the social strife that has been dragging down the French economy.

The first problem is that French economic trend growth is now more sluggish than before the 2008/2009 crisis, and this has an impact on purchasing power trends.
We can analyze this situation using the chart below, providing an overview of purchasing power trends on the one hand (demand) and productivity data on the other (supply).
The purple line shows the trend in purchasing power per consumption unit and the blue line plots productivity (GDP per hour worked). We can see that these two indicators ran parallel before the 2007 crisis, then diverged until 2012/2013 before converging again, although with weaker trend growth than before the crisis. Under normal circumstances, these two indicators should move at a similar pace, and a long-lasting divergence is not feasible i.e. wages cannot be disconnected from income creation via the production process

What about Households’ liabilities in the Euro Area?

Speech at a dinner on June, 12

Good evening Ladies and Gentlemen

I will not speak directly of the current economic outlook. It will come with my conclusion.
I will speak of two books that have had a real success recently. They are different but both of them are based on a sophisticated and robust empirical analysis. And this analysis is a support for their conclusions. I will jump on these conclusions because that’s what is interesting. Continue reading