This is exactly what the Organisation for Economic Co-operation and Development (OECD) has done in its Economic Survey of France 2017, which it presented at France Stratégie on September 14, the day of its release.
The Survey highlights France’s strong private consumption and investment, forecasting the French economy is set to expand by at least 1.6% by year-end 2018. It stresses that if the country’s citizens are to continue to benefit from a high level of social protection, stronger growth would be desirable.
The weight of socioeconomic status
Despite hourly productivity levels that are among the highest in the OECD, weak productivity gains coupled with high and complex taxes thwart the potential for productivity growth, the Survey states. This in turn jeopardizes France’s ability to sustain a high-quality public services and rising incomes over the long term.
What’s more, the country has a relatively high number of low-skilled adults, with limited access to training due to a high turnover of fixed-term contracts, which have become more widespread in recent years.
“Youth unemployment is high, in particular among young people in underprivileged neighbourhoods,” said Peter Jarrett, an economist and head of division at the OECD, when presenting the study.
In effect, socioeconomic status continues to have an outsized influence in French society. Despite enjoying relatively low poverty rates compared to other OECD countries thanks to a strong social safety net and a high minimum wage, the Survey stresses the ranks of the poor remain highly concentrated in certain neighbourhoods.
The Survey also points to France’s high public spending as a significant drag on economic growth. At 56.4% of its GDP in 2016, it is higher than in any OECD country. “Pension expenditures and the sheer number of government employees explain the high level of government spending”, said Jarrett.
Government largesse
To redress this, the Survey suggests France needs a long-term strategy to reduce the size of government, ensuring the debt is sustainable and paving the way for further tax cuts. This could be accomplished while safeguarding a high level of social protection. “If policies remain the same, the debt will increase,” Jarrett said.
The OECD backs President Emmanuel Macron’s government’s move towards a single pension system as a way to improve labour mobility, equity, transparency and lower costs. Beyond this, it advocates raising the country’s retirement age.
Eric Heyer, an economist and director of analyses and forecasts at the French Economic Observatory (OFCE), took issue with the OECD’s emphasis on the unsustainability of France’s public debt and what it deems is an excessive public payroll.
Depending on the rise in interest rates and EU economic policies, the OFCE forecasts French public debt decreasing from just over 96% of GDP today to anywhere from 93 to 92% by the end of President Macron’s first term in 2022. The OECD, for its part, considers there is a strong possibility that public debt will exceed 100% of GDP within five years.
According to the OFCE, when education, healthcare and social protection are excluded from public spending, France’s government expenditures were around the OECD average level at just under 20% of GDP in 2015.
Moreover, he contended that when all people working jobs that provide public services in government, education, healthcare and the civil service are taken into account, the figures for France are in fact similar to those for the UK and Germany and lower than the USA, the Netherlands and Scandinavian countries.
With respect to pensions, Heyer showed that spending as a percentage to GDP is set to decline from just under 15% today to just above 12% in 2060, lower than Germany and the OECD average at the time. What’s more, the latter is confronted with a population that is ageing faster than France’s.
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