The Yahoo!Finance headline states French recovery fizzles, German growth slows.
I am wondering “what recovery was that?” Others might be wondering “since when does one quarter of growth constitutive a recovery?”
Those are reasonable questions, so let’s take a look at details of the stalled “recovery”.
The French economy contracted by 0.1 percent, snuffing out signs of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters.
German growth slowed to 0.3 percent, from 0.7 in the second quarter, but Europe’s largest economy clearly remains in much better shape. Its performance matched forecasts.
Spain reported last month that it had pulled clear of recession in the third quarter, albeit with quarterly growth of just 0.1 percent, putting an end to a recession stretching back to early 2011.
A senior Italian official told Reuters this week the euro zone’s third largest economy probably contracted by 0.1 or 0.2 percent in Q3 but would return to growth in the last three months of the year, expanding by as much as 0.5 percent and ending nine quarters of slippage.
On Wednesday ECB chief economist Peter Praet raised the prospect of the bank starting outright asset purchases if things got too bad, although Bundesbank chief Jens Weidmann took the opposite tack, saying interest rates should not stay at record lows for too long.
OECD issues warning on French economy
To understand why the French economy is not going anywhere, just take a look at Hollande’s policies. For further clues, please consider OECD issues warning on French economy.
France is lagging behind other European countries in reforming its economy and needs to take comprehensive steps to restore its competitiveness, a stark report from the OECD, the club of rich countries, has warned.
In one of the most wide-ranging critiques by an international institution of France’s competitive weaknesses, the 87-page report sent a clear message to President François Hollande’s Socialist government that it has not done enough to overhaul Europe’s second-largest economy.
The report listed a catalogue of remaining structural problems that contributed to France’s greater loss of global market share than that seen by other big economies since 2000.
It cited France’s high minimum labour costs (80 per cent above the OECD average), high cost of public services (27.4 per cent of gross domestic product), heavy tax burden on employment (50 per cent of wage costs) and millefeuille of central and local government (including 36,700 municipalities) as among the factors holding back French competitiveness.
The report acknowledged the government’s move to give companies a €20bn tax break to lower labour costs. But it said this only dealt with half of the gap between the “tax wedge” in France – the difference between labour costs to the employer and the employee’s take-home pay – and the OECD average.
On pensions, the report said the government should consider “more ambitious measures focused on spending cuts”. It specifically called for lower indexation of pensions, more rapid introduction of longer contribution periods and a higher statutory retirement age – all measures rejected by Mr Hollande in his pensions reform earlier this year.
The Financial Times says “the 87-page report sent a clear message to President François Hollande’s Socialist government that it has not done enough to overhaul Europe’s second-largest economy.”
I suggest warning French socialists about needed economic reforms is about as useful as warning rocks about mosquitoes.
Mike “Mish” Shedlock