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In summer 2015, the developed economies continued to post a robust growth rate and that rate is also becoming more homogeneous. Activity in the English-speaking countries slowed down, while the Japanese economy showed a slight upturn. Eurozone GDP slipped only very slightly (+0.3%), as was also the case in Germany, Italy and Spain. In France, activity rebounded more strongly than expected (+0.3%), meanwhile, after posting strong growth in Q1 and then stalling in the spring. In almost all these countries, domestic demand remained buoyant, although activity was affected by a downturn in exports. The climate in the emerging countries remained gloomy on the whole: activity continued to be slow in China, barely levelled out in Russia and contracted once again in Brazil. The outlook information for the autumn suggests that the business climate in the emerging countries should stop deteriorating, which augurs well for world trade, although any upturn is likely to be weak.
As regards the forecast through to mid-2016, growth should remain sound in the United States and the United Kingdom, driven once again by strong domestic demand. In the Eurozone, the depreciation of the single currency, now close to its lowest level against the US Dollar since 2003, gives grounds for additional optimism as regards the rebound in exports. The accommodating policy of the European Central Bank has also brought down interest rates, providing households and businesses with an incentive to invest more. Finally, in November oil prices reached their lowest level since early 2009, boosting household purchasing power and the financial situation of enterprises.
The impetus from these factors, the improving business climate since the start of the year, and the rapid rise in household purchasing power all suggest thata progressive increase in growth is likely in France. The deadly terror attacks on 13 November in Paris lead us to modify this scenario in the short term, however, due to the fears they have caused among consumers and tourists. The downturn in certain service activities due to these events is thought to be the main factor in the slowdown in GDP in Q4, which should increase by just 0.2%. By H1 2016, these effects on growth should have almost faded out, although without triggering a backlash. Housing investment expenditure should almost have stopped falling by the end of 2015, after declining sharply for two years. In addition to this, the financial situation of companies has already recovered considerably in 2015 and should come even closer to its pre-crisis average. With stronger demand prospects and the one-off additional depreciation allowance incentive, their productive investment expenditure should remain buoyant.
All in all, the French economy should accelerate in Q1 2016 (+0.4%) and continue at that rate in Q2. After a year of moderate recovery in 2015 (+1.1%), the growth overhang for 2016 should almost reach that level by mid-year (+1.0%). With the upturn in activity and the development of schemes to boost the number of jobs created by that growth, market-sector employment should continue to progress through to June 2016. When the non-market branches are taken into account, total employment should progress more quickly than the active population and the unemployment rate in France should fall to 10.4% in mid-2016, bringing it back down to its level in mid-2015.
A number of uncertainties surround this scenario. First of all, the dramatic events in Paris have brought greater uncertainty, quite aside from the considerable and immediate downturn in certain branches of activity: if the various agents choose to postpone their expenditure longer, this will weaken the current recovery even further. On the other hand, these fears could ease more quickly than expected. In addition to this, the forecasts for the emerging economies are more fragile than usual and this could have consequences for world trade: although a moderate upturn is expected, their imports could accelerate more sharply in reaction to their fall in early 2015, while the possibility of a further decline in demand in the emerging economies cannot be ruled out.
A slight rebound in the Asian emerging economies has allowed an upturn in world trade
After a sharp slowdown in the emerging economies for two quarters and a fall in their imports, activity there showed a slight upturn in Q3. In China, industrial activity seems to be stabilising at a rate of around 6%, while GDP has stopped falling in Russia after four quarters of recession. In the countries of Central and Eastern Europe, activity remained buoyant. The Brazilian economy continued to contract, however. All in all, the imports of the emerging economies have perked up a little, especially in Asia, thereby allowing a progression in world trade after contracting for two consecutive quarters.
The advanced economies kept up robust growth in Q3 2015
In Q3 2015, the advanced economies kept up sustained growth (+0.5% after +0.5%), progressing at their average rate since early 2013. Activity slowed down in the United States (+0.5% after +1.0%) and the United Kingdom (+0.5% after +0.7%), while the Japanese economy rebounded (+0.3% after -0.1%).
Activity has slowed down in the Eurozone as exports stall
In the Eurozone, activity slowed down slightly in Q3 2015 (+0.3% after +0.4%, against a forecast of +0.4% in October’s Conjoncture in France), hit by a marked negative contribution of foreign trade, notably due to stalling exports. This slowdown concerned not only Germany (+0.3% after +0.4%), but also Italy (+0.2% after +0.3%) and Spain (+0.8% after +1.0%). The French economy, meanwhile, rebounded (+0.3% after 0.0%) a little more strongly than was forecast in Conjoncture in France in October 2015 (+0.2%).
In France, activity rebounded in Q3 2015
The upturn in dynamism in France was driven by a rebound in manufacturing output (+0.3% after -0.6%) and by an acceleration in activity in market-sector services (+0.6% after +0.3%). In construction, however, production fell significantly once again (-0.8% after -0.9%). Regarding the components of demand, household consumption rebounded a little (+0.3% after 0.0%), while foreign trade made a negative contribution to growth (-0.7.points), offset by a strong positive contribution of changes in inventory (+0.7 point), notably in transport equipment.
Monetary policies are diverging once again, pushing in favour of a further depreciation of the Euro
After six years of stability at very low rates, the Federal Reserve is likely to increase its base rates in light of inflation prospects and the regular improvement in the US labour market. Conversely, faced with low Eurozone inflation, the European Central Bank has decided to extend the duration of its programme of large-scale security purchases, including sovereign debt, and to lower its deposit facility interest rate even further into negative territory. Monetary policies continue to diverge and anticipation of these decisions has led to a further depreciation of the single currency to $1.08 for €1 in early December 2015 (against $1.12 for €1 in October). Likewise, interest rates remain low at the end of 2015 in the Eurozone, with French 10-year sovereign rates almost stable at around 1%.
Oil and commodity prices fall once again
With the perspective of a sharp slowdown in China, industrial commodity prices (rubber, copper, aluminium, lead, nickel, etc.) have continued to fall since the summer. More particularly, oil prices, which rose a little in the spring, fell once again from $65 a barrel in June to $45 at the end of November (Graph 1 ). By convention, the oil price has been set at this level for the purposes of this forecast.
Consumption set to drive activity in the advanced economies
In the advanced economies, the short-term outlook remains positive in Q4 2015. In the United States and United Kingdom, consumption should continue to drive activity as household purchasing power continues to be buoyed by the acceleration in wages and a continuing high level of job creations. In both these countries, however, industry would appear to be slowing down, hit by the rise in their respective currencies. In Japan, the business tendency surveys show a moderate progression in activity, thanks to a timid upturn in domestic demand. Finally, in the Eurozone, the upturn would seem to be very much underway. All in all, the imports of the advanced economies should remain dynamic through to mid-2016 (+1.2% per quarter).
After a cold snap at the start of the year, the upturn remains weak in the emerging economies
The business climate remains poor in most of the major emerging countries, however (Graph 2). In China, activity is likely to hold up thanks to household consumption, although investment should slow down further: as an annual average, growth is set to be lower in 2015 than in 2014, which was already the lowest figure since 1990. However, Chinese imports are likely to return to growth and the flow of trade to show an upturn in the economies of the emerging countries in Asia. In Russia, activity is set to progress slightly, although any prospect of a clear recovery remains remote for the moment. Brazil, meanwhile, is likely to remain in recession. All in all, the imports of the emerging countries should progress moderately when compared to their trend (+0.8% per quarter through to mid-2016 against +2.0% on average since 1990).
World trade set to recover in 2016, although without returning to its pre-crisis growth rate
World trade fell sharply in H1 2015 (-0.8% in Q1 then -1.0% in Q2) and then rebounded moderately without a backlash effect in Q3 (+1.1%), thanks to the recovery in trade in Asia. Through to mid-2016, the imports of the advanced economies should remain more dynamic than those of the emerging economies and world trade is likely to progress at a rate of +1.0% per quarter, although this is still a lower rate than that observed between 2000 and 2007 (+1.5% per quarter).
Investment benefitting from the upturn in lending, especially in Southern Europe
In summer 2015, for the first time in over three years, outstanding loans to non-financial corporations in the Eurozone increased. In Italy and Spain, moves among companies to reduce debt eased considerably with the sharp fall in bank lending rates invoiced to companies. The upturn in credit in the Eurozone is likely to go hand-in-hand with growth in productive investment through to mid-2016, at a rapid rate in Spain (where growth was already strong) and also in Italy, buoyed, like in France, by the tax incentive measures in the form of the one-off additional depreciation allowance.
Growth rates evening out in the Eurozone at around +0.4% per quarter
In the major Eurozone countries, the business climate improved further over the summer and early autumn, particularly in Italy where it is now at its highest since 2007. Through to mid-2016, domestic demand is set to remain sustained and growth should hold up (+0.4% per quarter). The growth rates of the Eurozone countries are converging: Spain is likely to slow down slightly (+0.7% in Q4, then +0.6% per quarter in H1 2016) as the catch-up effect in investment runs out of steam, while activity in Italy and France should progress practically at the same rate as in Germany.
Eurozone household consumption set to benefit from the upturn in employment
In the Eurozone, household consumption should continue to grow soundly through to mid-2016 (+0.4% per quarter) thanks to the sharp acceleration in their purchasing power, stimulated by the fall in oil prices and also the generalised upturn in employment. More particularly, consumption should progress strongly in Spain, where the improvement in the labour market is very clear, and in Germany, thanks notably to the effects of the minimum wage working through. In Germany, government consumption should also remain dynamic due to the additional expenditure required to host the large numbers of refugees arriving in the country.
European exports set to rebound after stalling in Q3
In H1 2015, European exports surprised by their dynamism at a time when world trade was contracting. Conversely, when trade was recovering in Asia in Q3, Eurozone sales slipped back, notably those towards the emerging countries. Through to mid-2016, they should progress at a rate close to world demand for products from the Eurozone, with the past depreciation in the Euro offsetting the trend losses in market share.
French exports, in particular of transport equipment, fell back in Q3, as did exports in Germany and Italy. However, this would appear just to be a jolt, partly offsetting the very strong growth over the previous four quarters. Through to mid-2016, the buoyancy of activity in the Eurozone and the fall in the single currency should once again boost French exports which should progress at almost the same rate as that for world trade: +0.7% at the end of 2015 then +0.9% and +1.0% in the first two quarters of 2016.
The business climate in France improved again through to November
After remaining stable on the whole from September 2013 to February 2015 at around 94, the business climate in France rose to 102 in November, a four-year high. This improvement was driven by industry, commerce and also market-sector services (Graph 3). The business climate remains poor in building, however.
Manufacturing output likely to progress again moderately through to mid-2016
In manufacturing industry, business leaders indicated in November that their past activity remained on a positive trend. Manufacturing output should therefore progress again in Q4 (+0.4% after +0.3%). The balance of opinion on production prospects still remains relatively positive and activity should remain practically at this rate in H1 2016 (+0.3% per quarter).
Activity in services likely to suffer from the consequences of the terror attacks in Q4
According to the business leaders surveyed before the terror attacks of 13 November, the short-term outlook in services continued to improve over the summer to its highest level since summer 2011. However, activity in market-sector services is likely to suffer from the consequences of the dramatic events in Q4 2015 (+0.3% after +0.6%), particularly in accommodation, food, recreation and transport services. The rate of growth should then show a progressive upturn (+0.5% then +0.6% in the first two quarters of 2016). With the exceptionally mild temperatures in early November, energy production should fall in Q4 (-0.7%), then progress moderately in H1 2016 (+0.5% in Q1 then +0.3% in Q2).
Construction set to stop making a negative contribution to activity
Over the past two years, production has fallen back sharply in construction, knocking an average of 0.1 points per quarter off GDP: construction of housing was hit by a sharp fall in household demand and activity in civil engineering suffered from a drop in public investment, especially by local authorities, due to cuts in their budgets and the electoral cycle of the municipal authorities. The slight upturn in new housing starts suggests that the bulk of the adjustment in building is behind us and that production in the sector should almost level out through to mid-2016.
Growth in GDP should rise slightly in early 2016
All in all, GDP should slow down at the end of 2015 (+0.2%) before perking up in early 2016 (+0.4% per quarter in H1) as the effect of the terror attacks fades out gradually, energy production rebounds and building performs more strongly. Growth should stand at +1.1% over 2015 as a whole, and +1.3% year on year in mid-2016.
The CICE and Responsibility Pact should continue to boost the number of jobs created by growth
Although it had been on an upwards trend since the end of 2014, market-sector payroll employment levelled out in Q3 2015 (-1.000 after +28,000 in Q2). Labour force prospects are improving significantly in the business tendency surveys, especially for temporary employment, and market-sector payroll employment should progress again through to the end of the year (+25,000 jobs in Q4). In early 2016, job creation is likely to be robust, sustained by the extra jobs created by the Tax Credit for Encouraging Competitiveness and Jobs (CICE) and the Responsibility Pact. All in all, market-sector payroll employment should increase by 35,000 jobs in H1 2016.
Total employment to continue increasing at the same rate
In the non-market sectors, employment is unlikely to weaken in H1 2016 (+20.000. after +16,000 in H2 2015). The number of beneficiaries of subsidised contracts in the non-market sectors should be close to stable. In addition, self-employment and agricultural payroll employment should remain dynamic (+16,000 over the first six months). Total employment should therefore progress by 73,000 jobs in H1 2016 after +57,000 in H2 2015.
Unemployment to fall slightly through to mid-2016
In Q3 2015, the unemployment rate posted an unexpected one-off rise (10.6% after 10.4%), despite the increase in employment: the main effect of the increase in the number of unemployed was an unusual fall in the halo of unemployment, notably in the number of so-called «discouraged» unemployed. In the course of the following quarters, the expected rise in employment should exceed the variation in the active population and the number of unemployed should start falling again (Graph 4). The unemployment rate should stand at 10.4% in mid-2016 (10.0% in Metropolitan France), thus returning to its level in Q2 2015.
Inflation should rise again, while remaining at a low level through to mid-2016
In November 2015, inflation was still very moderate: consumer prices stagnated year on year. Headline inflation should only just increase through to mid-2016 (+0.2% in June), mainly driven by higher energy prices partly linked to the rise in taxes in early 2016. The upturn in core inflation since the start of the year has been confirmed, however, standing at +0.7% in November 2015 (against -0.2% one year earlier). It should then be stable until mid-2016 (+0.7% in June 2016): on the one hand, the past depreciation of the Euro should buoy up imported product prices, especially in electronics, while the past fall in commodity prices should continue to work through on the other, pushing inflation downwards.
Nominal wages to continue progressing moderately
On an annual average basis in 2015, nominal wages in the market-sector branches should continue increasing at the same rate as in 2014 (+1.6%), despite the low level of inflation and high level of unemployment. In early 2016, they should continue at the same rate despite the slight upturn in inflation, and nominal wages should progress by 0.8% in H1.
Household purchasing power should accelerate sharply in 2015 and not weaken in early 2016
In 2015, the purchasing power of household income should continue to accelerate, increasing by +1.7% as an annual average (after +1.1% in 2014 and -0.1% in 2013), due to the rebound in property income and moderation of compulsory levies this year, while earned income is unlikely to weaken. This would be its strongest rise since 2007. In early 2016, it should progress at a quarterly rate of around +0.3%.
Household consumption to fall back in late 2015
After rebounding in Q3 (+0.3% after 0.0%), consumption should fall back slightly at the end of 2015 (-0.1%, Graph 5). Consumption of services, notably in accommodation and food services, recreation and transport, is likely to be hit by the fears caused by the terror attacks of 13 November. In addition, energy expenditure is likely to fall on account of the mild temperatures in November. In H1 2016, household consumption should accelerate progressively in services and rebound by reaction on other items. Spending on home equipment should also be driven by the change in the television broadcasting standard and purchases of electronic products on the occasion of Euro 2016.
In mid-2016, the savings ratio should be slightly up year on year
Although the strength of the purchasing power of households has buoyed up their consumption since the beginning of the year, it has also fed into their savings: on average in 2015, the savings ratio should stand at 15.4%, up 0.3 points on 2014. In early 2016, consumption behaviour should fall more closely into line with purchasing power, although without correcting the past rise in savings: in mid-2016, the savings ratio should stand at around 15.4%, up 0.3.points on its mid-2015 level.
Corporate investment should accelerate further
Over the first three quarters of 2015, corporate investment progressed clearly (+0.8% in Q1 2015 then +0.5% in Q2 and +0.7% in Q3), notably in productive assets. There are many favourable factors: domestic and external demand prospects are looking up, the margin rate is rising considerably thanks to the CICE, the Responsibility Pact and the fall in oil prices and, finally, borrowing costs have fallen considerably. In addition to this, the possibility of a one-off additional depreciation allowance has led to companies bringing forward purchases of capital goods. These improvements are showing through progressively in business tendency surveys: the balances of opinion on investment among entrepreneurs in services have been above their long-term average since April, while production bottlenecks in industry are at a level not seen since 2008. Corporate investment should therefore accelerate slightly, at a rate of +0.8% to +0.9% per quarter in the forecast.
Household investment should stop falling
New home sales have been increasing since the end of 2014, and the number of building permits, which reached a low in early 2015, has been rising again since then, notably for individual homes. After falling markedly for two years and in light of the production lead times in the sector, household investment should practically level out through to mid-2016.
The dynamism of domestic demand should drive imports
After progressing strongly this summer, imports should slow down at the end of the year, notably those of refined products by a backlash effect. They should accelerate again in early 2016, driven by domestic demand. All in all, the profile of French activity should continue to be marked mainly by that of domestic demand: slowing down at the end of 2015, especially due to consumption, and accelerating thereafter. The contributions of foreign trade and changes in inventory should be neutral, however.
The upturn in emerging countries seems fragile
In our scenario, the imports of the emerging economies should continue to recover and world trade should accelerate in early 2016. This should be the result mainly of Russian and Chinese imports, which collapsed much more in early 2015 than would have been suggested by their levels of domestic demand, and which should start progressing again in line with activity, without making up for the previous fall. A new weak spell cannot be ruled out, however, or their imports could accelerate more strongly by a backlash effect, notably to build up inventory again.
The extent of the reaction to the terror attacks is uncertain
The effect of the terror attacks on activity, and in particular on household consumption, remains difficult to appreciate (see the focus in «Consumption»). On the basis of the precedents of 1995 and 2001 and of the first information to become available in the responses to business tendency surveys, our scenario includes a negative contribution of around -0.1 points of GDP in Q4, mainly via the expenditure of households and foreign tourists on accommodation and food, transport and recreation services. This evaluation remains fragile and uncertain by nature, however: the fears elicited by the terror attacks of 13 November could lead the various agents to postpone their expenditure more than expected, thereby further weakening the current recovery. On the other hand, it could fade out more quickly than expected: the rebound in consumption could provide a surprise as early as in Q1 2016.
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