France Economic Problems Explained

While shedding light on France’s ongoing challenges to the economy, the French President, Emmanuel Macron said, “France is not an island, and our economy is affected by events beyond our borders.” Despite its prominent position as one of the leading European economies, France has grappled with a series of economic turmoil in past years. These challenges range from sluggish growth, rising unemployment, weak government finances, and lagging competitiveness.

While the economy of France has shown resilience and job creation against these adversities, the challenge to attain a sustainable economic environment still remains on the table. In this article, we try to delve into a detailed analysis of such economic problems that are faced by the French economy. Here are a few of them:

High Unemployment

Since the global financial crisis of 2008, France has been struggling with high unemployment, and the issue persistently continues. According to reports, France lags behind other European nations when it comes to its unemployment rates, impacting its productivity and competitiveness. France’s unemployment rate was ranked fourth in Europe as of the fourth quarter of 2019. There have been some improvements, particularly among workers aged 25 to 49, but the issue remains.

The high unemployment rate has put pressure on the French economy by increasing the burden on the social safety net, reducing support from a few workers, and making the French economy less competitive. On the other hand, skills development and economic growth are hampered by the high unemployment rate among young people.

The French President, Emmanuel Macron has initiated an investment of 15 billion euros in employment training. Moreover, He plans to increase sanctions against those who are not actively seeking employment. These steps are aligned with the words of former French President, François Hollande, who said, “In a country as prosperous as France, there should be no room for chronic unemployment. It’s a challenge we must collectively address.”

Lagging Competitiveness

France has a tenacious current account deficit because of a decrease in its competitiveness. In 2019, the current account deficit of the country was slightly better than the previous year (i.e., 15.1 billion euros), but still showed that France imports more than it exports. The reduction of labor costs and employment tax deductions was introduced in France in order to improve competitiveness. Despite inferior costs of labor, many French manufacturers are unable to find competent labor.

Nevertheless, the skill gap in the workforce remains a challenge that hinders growth, and the government’s apprenticeship and Vocational training reforms are aimed at addressing this issue.

Sluggish Growth

Slow growth is the fundamental economic problem in France. This situation has been going on for a long time and lags behind other countries. The long-term outlook is still uncertain despite the economic growth rate decreasing to 1.1% in 2020. France created one million new jobs, between 2016 and 2019, due to labor cost reductions and labor reforms. Wage tax reforms, unemployment benefit reforms, and Vocational training are expected to further job creation. However, nearly a quarter of job seekers under the age of 25 are affected by the high unemployment rate among young people.

Weak Government Finances

France’s budget deficit is high, and the debt to GDP is rising. The EU fiscal rules allow this level to be higher than it is. Surprisingly, France has been able to borrow at very low-interest rates despite the fiscal challenges. The European Central Bank’s bond-buying program is partially to blame for investor confidence in being repaid on time. However, revised unemployment benefits and comprehensive pension reform have been initiated by the French government to address fiscal issues. Tax exemptions, social benefits, healthcare, and subnational spending are some of the areas for reform that require dire attention.

Resilience and Reforms

France has shown resilience in the face of a number of adverse events, such as the COVID-19 pandemic, component shortages in production, energy price spikes, and domestic social and political crises. To counter economic challenges, significant reforms have been implemented by the government to boost economic growth potential and reduce fiscal costs. Labor market changes, pension system balancing, green transition acceleration, improvements in product and service markets, and educational system efficiency enhancements are some of the reforms. The banking industry is stable despite global financial stability risks and encourages authorities to increase capital requirements through preventative measures.

Summing Up

All in all, France faces various economic challenges but is committed to addressing them through various policy measures and reforms. In the future, we will address high unemployment rates, improve competitiveness, and ensure long-term economic prosperity. Promoting growth and stabilizing government finances are included in the areas to be addressed on a priority basis. While taking corrective measures, the French authorities must remember the words of Michael Turner, who said, “France’s economic recovery is a testament to the power of innovation, adaptability, and a skilled workforce.”