THE ECONOMY

OF FRANCE

ELAF HASSAN ALJADANI

LUJAIN AYMAN WALI
KHOLOOD HUSAIN
LUBNA ALI LAMI

INSTRUCTOR

NADIA YUSUF
 AN ANALYSIS OF
ECONOMIC FACTORS
OF FRANCE

France's economy is well-developed and market oriented. It is the world's seventh-largest economy in
nominal terms and the ninth-largest economy in terms of purchasing power parity. It was Europe's third largest
economy as of September 30, 2020, after Germany's and the United Kingdom's economies.

In this report, we will examine eight Macroeconomics factors of France; the gross domestic product,
inflation, unemployment rate , business cycles, money, banking, monetary and fiscal policy. We discus each
factor in more details through the report. In comparison to its counterparts, the French economy fared well during
the financial crisis. France's GDP merely declined in 2009, thanks to minimal reliance on external trade and
PREPARED
sustained private consumption rates. However, recovery hasBY
been gradual, and high unemployment rates,
particularly among young people, continue to be a source of concern for policymakers. The economy stalled once
the crisis began, and the government has had to deal with a number of economic issues. Consumer purchasing
power has decreased as government tax revenue has decreased. Policymakers have tried to modernize the
economy, but it has proven to be a challenging task.

France, like many other European countries, has had stagnant economic and fiscal concerns in recent
years.France's GDP, has stayed virtually unchanged since 2011, while the jobless rate remains high.
INTRODUCTION

France is among the major nations in Europe and a part of the EU. It is bordered on
the northeast by Germany, Belgium, and Luxembourg, on the southern part of the country by
Swiss & Italy, as well as on the southwest by Spain. By way of the English Channel, the U.K
located on the border of France. The country acts as the entrance point to Europe, with
several huge global airports (some of them are positioned in Paris), ferry docks, and the
French railway system.
It is located on Europe's western boundary, surrounded on the west by North Atlantic Ocean
(the Bay of Biscay), on the northwest by the English Channel, and on the north by the North
Sea.
The climate in the mainland of France is moderate, with substantial geographical
variations. The weather is generally moderate, and rainy season throughout the year. Latitude
and distance from the sea or mountainous terrain cause regional variations. The French
shoreline has less noticeable changes in temperature than the rest of the nation, however it
has greater rainfall.
France is Europe's second most densely populated country. Also, it is struggling to
deal with the elderly population. like the other Western nations.

According to World meter's elaboration of the most recent United Nations records,
France's latest population is 65,469,706 as of Thursday, November 11, 2021. And according
to the UN reports, France's population in 2020 valued as 65,273,511 citizens at the middle of
the year. France accounts for 0.84 percent of the global population.
GROSS DOMESTIC PRODUCT (GDP)
The gross domestic product (GDP) is the most often used metric for assessing
economic activity. It is the total gross value added by all resident institutional units engaged
in production within a given year, as measured at market prices. It calculates the new money
generated by resident productive activities each year and allows for worldwide comparisons.
The GDP is provided in volume at chained prices and at current prices. Its volume
change is an indicator of economic growth. Its price index tracks the price changes of its
constituents.
This is the recent GDP measurement of France at the third quarter of 2021:
GDP = Consumption expenditure + Investment + Government expenditure + Net exports
The Consumption Expenditure was
reported at 379.521 USD bn
The Investment was reported at 151,694
The Government Consumption was
reported at 143,454
The Net Exports was reported at - 11,592
At the end the Nominal Gross Domestic
Product (GDP) was reported at 626,988
And the Real GDP Real Gross Domestic Product (Real GDP) was reported at 582,338

After no growth in the first quarter,

France's GDP increased by 1.1 percent quarter
over quarter in the second. As a result, GDP is
presently 3.2 percent lower than it was in the
fourth quarter of 2019, just before the pandemic
broke out. Fixed investments fueled the quarter's
growth, which increased by 2.4 percent year over
year. Despite the fact that household expenditure
has rebounded, it remains the only domestic
component of GDP that has not recovered to pre-
pandemic levels. In the meanwhile, because
imports increased faster than exports, net trade
slowed growth. COVID-19 was remained a prominent factor on the economy throughout the
quarter, despite France's substantial gains in combating the epidemic.

03
INFLATION

In France, the consumer price index (CPI) is the official measure of inflation. It offers
an estimate of the average change in the cost of products and services consumed by
households over two time periods. It's a tally of changes in product pricing based on a
constant-quality foundation.
From 1990 to 2021, the Consumer Price Index CPI in France averaged 88.02 points,
with a peak of 107.26 points in October
2021 and a low of 66.42 points in January
1990. Actual numbers, historical data,
prediction, chart, statistics, economic
calendar, and news are all available on this
page for the France Consumer Price Index
(CPI). The figures, historical statistics, and
charts for the France Consumer Price Index (CPI) were last updated on November of 2021.
We can measure the Inflation rate by this equation: [(CPI this year – CPI last year) ÷
CPI last year] x 100. In October of 2021, the Consumer Price Index CPI in France grew to
107.26 points, up from 106.81 points in September.
According to early forecasts, France's annual inflation rate would jump to 2.6 percent
in October 2021 from 2.2 percent in September, slightly above market predictions of 2.5
percent. Due to an increase in service costs (1.8 percent vs. 1.4 percent in September) and
energy prices (1.8 percent vs. 1.4 percent in September), this would be the highest rate since
October 2008. (20.1 percent vs 14.9 percent).
Costs were predicted creeping up by 0.4 percent
on a monthly basis, following a 0.2 percent dip
in September, as energy prices are expected to
rise quickly due to petroleum product prices as
well as natural and town gas prices. The
harmonized index is expected to rise 3.2 percent
year over year and 0.5 percent month over
month.

04
UNEMPLOYMENT RATE

The unemployment rate in France has an average of 8.41% according to

tradingeconomics.com. During the first quarter of 2020, the unemployment rate in France
decreased to 7.1%, which was the lowest level during the last 25 years. While it was on its
highest level in 1997 where it increased to 10.7% during the same time period.

The unemployment rate in France is considered to be one of the highest rates in the
EU. For the past few years, younger generations in France have appeared to be
disproportionately hit by unemployment, despite the fact that the country’s working
population is shrinking. Thus, the French government has been trying to prevent the rise of
this problem, therefore it disclosed €6.5 billion to help solve the youth unemployment.
The unemployment rate for the last quarter of this year 2021 is 9.07% and it is
anticipated for the unemployment rate after a year from now to drop to 8.29% for the last
quarter of 2022 in France.
The impact of the health crisis differed by age and gender, where women have been
hit worse by the crisis, with a 0.7-point rise from February to May 2020. Over the same time
period, the unemployment rate for males climbed only by 0.2 points.
Unemployment benefits in France are calculated as a percentage of the prior salary
rather than a fixed rate.
It is computed based on the previous year's social security contributions and wage level.
BUSINESS CYCLES

Growth:
I believe most of us know that France is famous for its luscious perfumes and ancient
cheeses, but have you ever thought that there are more activities the French do to increase
their country’s growth? Well, the energy sector is one of France’s most important sectors.
Electricite de France (EDF), the world's largest utility company, is the primary French electri
c business.
Engie, a service firm located in Courbevoie, France, is another prominent participant
in the energy market. ENGIE is the world's biggest independent utility firm, engaged in a
wide range of operations such as natural gas production and distribution, nuclear generation,
and electricity distribution.

Human capital:
Since the mid-1970s, France has seen three fundamental breakdowns in labor
productivity growth. The first two happened in 1986 and 1993, with the most recent
occurring in 2004.
Over the whole time, human capital contributes between two-thirds and three-quarters
of the trend in productivity increase. Indeed, human capital provided 2.2 points to
productivity growth between 1976 and 1986, when it averaged 3.4 percent each year. Since
2004, its contribution has steadily fallen to 0.6 points. Concurrently, productivity growth has
slowed to 0.7 percent per year over the previous three years.

Recessions:
Since 1970, five occurrences have been classified as
recessions in France, the oil shocks of 1974-75 and 1980,
the investment cycle of 1992-93, the Great Recession of
2008-09 associated with the Global Crisis, and the health
shock associated with the Covid-19 outbreak. The dates of
the cycle turning points that characterize these recessions
are summarized as followed:

06
CURRENCY IN FRANCE

French Franc (FF)

France had a currency called the French Franc. "It was the name of a set of coins
valued at one "Livre tournois" from 1360 to 1641, and it lingered in common language as a
term used to describe this sum of money. In 1795, it was reestablished (in decimal form). It
was re-denominated in 1960, after two hundred years of inflation, every new franc (NF)
equaling 100 of the previous francs. The NF form stayed for more few years until the
currency was renamed simply the franc; until the euro (pertaining to banknotes and coins)
was introduced in 2002, some large old French citizens continued to refer to and value
products with regard to the old franc (equal new centime).
I n the nineteenth and twentieth centuries, the French franc coin was the worldwide
reserve currency as a point of reference.

The “Euro €” is the medium of exchange of France

The medium of exchange of France is (Euro), the symbol of the euro is (€), also EUR
is known as the “3 letter code”. Even though it is the medium of exchange of France,
however, it can be used in 18 other European Union nations also. In 2002, the European
Central Bank provided Euros, which replaced the "French Franc". In France, the symbol is
clearly followed by the number, like 10€. The Euro is provided by the European Central
Bank and is the world's second most exchanged currency on foreign exchange markets.

What French currency looks like?

Firstly, the “French” Euro doesn’t exist.
France, on the other hand, mints the coins with a
one-sided national design, these coins are widely
accepted across the eurozone. In the opposite
direction, any coins with national designs made in
other eurozone nations are accepted by France. The
regular eight denominations of French euro coins
are: one cent, two, five, ten, twenty, fifty cents, €1, and €2.

07
BANKING

First bank in France

The bank of France is headquartered in Paris, (Banque De France) it is the French
central bank. It founded in 1712 as a private corporation to manage governmental debts and
issue notes. It is in charge of the French government’s accounts, as well as the treasury's and
some public firms' accounts and payment facilitation. It also manages public securities
auctions on regard of the European Central Bank.

Banque de France
The French national bank was established in 1800
to reestablish trust in the French banking system
following the financial upheavals of the revolutionary
period. Headquarters are in Paris. The bank was listed
among its founding shareholders Napoleon Bonaparte,
members of his family, and several leading personalities
of the time. The bank was founded partly with state
financing, but mostly with private capital, it is
closely united with the state from the start. The French
government claimed participation in the control of the
bank through the appointment of the governor and two
deputy governors, whereas the stockholders were represented by a board of 15 regents is
chosen by the top 200 stockholders. The bank was initially granted the exclusive privilege to
issue banknotes in Paris for a period of 15 years; it was later authorized to establish discount
offices in towns where when economic considerations required it, and it was afterwards
authorized to exercise its rights, including the privilege of note issuing, in locations where
discount offices were created. Its note-issuing privilege was extended to cover the entire
country of France in 1848 as a result of the bank's conversion of nine provincial banks with
note-issuing powers into branches. The bank was nationalized in 1946, and its note-issuance
authorization was extended indefinitely. In 1999, Banque de France became a part of the
European Central Bank.
MONETARY POLICY

Monetary policy is a set of tools that are provided by a central bank to a country for
the purpose of promoting sustainable economic growth. These tools control the overall
supply of funds available to the country's banks and their clients. It aims to keep the economy 08
running so that it is neither too hot nor too cold. Sometimes the central bank may force
interest rates to be raised or lowered to discourage spending or to stimulate more borrowing
and spending.
Responsible for implementing the monetary policy of France since 1999 is the French
Central Bank, as it follows the common monetary policy for the euro area established by the
European Bank (ECB). the first objective of this policy is to take care of price stability within
the Eurozone.
The French bank applies the interest rate policy set by the European Central Bank for
central banks. It is committed to maintaining a lower inflation rate 2% To achieve this, a set
of monetary policy tools is used, including:
 Determining the main deposit rate.
 Determine the standard refinancing rate.
In 2014, an economic crisis occurred that led to a drop in the inflation rate to the danger
zone, which amounted to 1%, and this prompted the European Central Bank to reduce the
main refinancing rate to a record level that reached 0.15% and The European Central Bank
thus became the first major bank to adopt a negative deposit rate.
The ECB’s monetary policy strategy
In 1998, the European Central Bank agreed to define elements of its monetary policy
strategy:
1. Establishing a quantitative definition of price stability
2. Monitoring the growth of money determined by the monetary total
3. Extensive assessment of the expectations of price developments.
Based on the previous elements, they chose a strategy based on two pillars:
 First: economic analysis
 Second: monetary analysis
In 2020, the European Central Bank announced the start of a strategic review and also looks
at the importance of some other elements such as climate change, digitalization, globalization
and financial stability.
MONETARY POLICY

The first pillar: economic analysis 09

Economic analysis evaluates the main factors influencing price developments in the short to
medium term. Macroeconomic forecasts help to understand and anticipate developments in
key economic variables.
The second pillar: monetary analysis
Monetary analysis is based on the long-term correlation between money and prices and
serves as a means of examining the short to medium-term indicators of monetary policy that
economic analysis provides.
It consists of a detailed analysis of monetary developments that aims to test their effects on
inflation and future economic growth.
Implementation of the monetary policy: traditional instruments:
A. open market operations
Open market operations play a crucial role in directing interest rates and managing the
liquidity position within the market. Regular open market operations consist of:
 Liquidity Operations for a week (Major Refinancing Operations)
 Three-month liquidity operations (long-term refinancing operations)
The least systematic operations in the open market are adjustment and structuring operations.
Its goal is to deal with unexpected liquidity fluctuations and lower interest rates.
B. Standing facilities
Offering two types of facilities :
 Facilitating borrowing in order to obtain liquidity from the Central Bank in return for
providing qualified and sufficient assets.
 Deposit facility in order to make deposits with the Central Bank.
C. keep of minimum reserves
The objective of minimum reserves is to stabilize short-term interest rates and widen the
liquidity shortage in the banking system, and this facilitates the control of money market
prices.
FISCAL POLICY

10
Fiscal policy is the economic measures and decisions taken by the government,
through which tax rates and levels of government spending are determined. As governments
can decide to spend money to provide public services and support the economy. It can raise
this money by taxing or borrowing from the financial markets.
The amount of taxes that must be paid and the amount of subsidized health care are
important concerns for many people, but the main influence of the government is to
determine the incentives since it is its policy that determines the general framework of the
economy. For example, higher taxation is an incentive for people to earn more and spend
less. These incentives promote long-term economic growth.
In recent decades, France and lots of other European countries have witnessed a rise
in the size of the government and an accumulation of public debt. And the government had to
face the economic crisis and used fiscal policy as a tool to stimulate the economy and reduce
the budget deficit. The government has taken drastic measures, namely reducing the budget
and increasing taxes, in an attempt to revitalize the French economy and reduce the budget
deficit. Then I decided to impose higher taxes on the wealthy while maintaining government
spending.
In 2020, during the COVID-19 pandemic, the French government issued bonds with
negative 10-year interest rates, which means that investors who buy French bonds will pay,
rather than receive interest for owning them.

Taxes in France:
Taxes are monetary benefits imposed on people according to their ability for the purpose of
public spending, and the aim of which is to achieve the economic goals set by the
government.
Taxes in France are categorized according to the organization they benefit from and the
people who will pay them.
FISCAL POLICY

11
Some types of taxes applied in France:
Production and import taxes
These taxes apply to the production and consumption of goods and services, and the body
responsible for collecting them is public administrations or European Union institutions.
Production taxes apply to the use of labor, property, land and buildings. Consumption taxes
apply to alcoholic beverages, manufactured products, tobacco products, and energy products.

Value Added Tax (VAT):

VAT is a general consumption tax that applies to goods and services located in France. Value
added is a proportional tax on the output collected by companies and paid by the final buyer,
is the consumer.
Its current record rate is 20%, and net revenue from VAT in 2013 was €141.2 billion.

tax on petroleum products:

Internal Consumption Tax on Petroleum Products (TICPE): This tax applies to the internal
consumption of petroleum products and biofuels that are consistent with fixed rates.
Special Consumption Tax (TSC): It applies to unleaded diesel fuel, motor, and heating fuels
such as gasoline, natural gas, and electricity

Income Taxes:
Income tax is taxes levied by governments on income generated by businesses and
individuals within their jurisdiction. It is a source of income for governments. They are used
to finance public services, pay government obligations, and provide goods to citizens.
Income taxes in France are divided into three categories: corporations, individuals, and social
purposes.
CONCLUSION

12

To conclude, France has the fifth largest GDP in the world and the third largest GDP
in the EU. Therefore, France is anticipated to recover from the health crisis that hit almost the
whole world. During the third quarter of this year 2021, the GDP and the economy of France
had risen 15% more than the same time period of 2020. Thus, France aims to reach the
growth of pre-pandemic by the end of 2021.
By global measures, France has an extraordinarily high productivity. Therefore, the
French government is doing its best to fight the youth unemployment by spending millions of
euros.
It is also predicted that the unemployment rate will drop by the end of this year 2021.
However, the growing rate of the country has been observed to be weak in 2022.
In my opinion, France growing rate is better than most of other few countries, and the living
standards are much better than other few countries.
 13
OUR RECOMMENDATIONS

In the period from 2020-2021, Covid-19 caused a large budget deficit and a decline in the
French economy. We suggest increasing the tax rate on the rich class and lowering the tax on
the poor because they cannot bear the repercussions of the significant impacts on the
economy caused by the coronavirus.
In addition to increasing tax rates for large corporations to stimulate economic
growth. Requiring companies to employ young people to reduce unemployment rates, focus
on tourism, and carry out many recreational activities to attract tourists. Presenting attractive
offers to investors to attract them to invest and inject money into French banks.

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REFERENCES

● France: Introduction

https://www.welcometofrance.com/en/fiche/overview-of-france

https://www.worldometers.info/world-population/france-population/

https://www.thoughtco.com/geography-of-france-1434598

● France - Nominal Gross Domestic Product

https://www.economy.com/france/nominal-gross-domestic-product

https://www.insee.fr/en/statistiques/5761235?sommaire=5761571

https://www.economy.com/economicview/indicator/fra_gdp/D2C9CC40-4A2C-4E99-BA70-
CE44B55BD8E5

● France - Real Gross Domestic Product

https://www.economy.com/france/real-gross-domestic-product/working-day-adjusted-and-
seasonally-adjusted

● France: Inflation rate

https://www.statista.com/statistics/270353/inflation-rate-in-france/

https://tradingeconomics.com/france/inflation-cpi

https://www.inflation.eu/en/inflation-rates/france/historic-inflation/cpi-inflation-france-
2020.aspx

● France: The unemployment

https://tradingeconomics.com/france/unemployment-rate

https://www.rfi.fr/en/france/20200723-french-government-unveils-%E2%82%AC6-5-
billion-plan-to-help-young-unemployed

15
REFERENCES

https://www.statista.com/statistics/460548/youth-unemployment-rate-france/
15

https://www.statista.com/statistics/1147699/evolution-unemployment-coronavirus-france/

https://www.statista.com/statistics/1135815/unemployment-rate-france-before-after-
lockdown-coronavirus-by-age-and-gender/

https://www.connexionfrance.com/French-news/French-unemployment-benefits-What-
is-changing-for-job-seekers#:~:text=Unemployment%20benefits%20in%20France
%20are,12%2C680%20gross%20payment%20per%20month .

● France: Business cycle

https://almalomat.com/131643/%D8%A8%D9%85%D8%A7%D8%B0%D8%A7-
%D8%AA%D8%B4%D8%AA%D9%87%D8%B1-
%D9%81%D8%B1%D9%86%D8%B3%D8%A7-
%D8%B5%D9%86%D8%A7%D8%B9%D9%8A%D8%A7-%D9%88%D8%AA
%D8%AC%D8%A7%D8%B1%D9%8A%D8%A7/

https://www.strategie.gouv.fr/english-articles/role-human-capital-productivity-slowdown-
france

https://voxeu.org/article/dating-business-cycles-france
● France: Money

https://www.4xtransfer.com/france-currency-money-name/

https://tradingeconomics.com/france/currency

● France: Banking

https://www.britannica.com/topic/Bank_of_France
REFERENCES

16
https://en.m.wikipedia.org/wiki/Banque-de-France

https://en.wikipedia.org/wiki/French_franc

 France: monetary policy

https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-
policy

https://www.focus-economics.com/countries/france

https://www.europarl.europa.eu/factsheets/en/sheet/86/european-monetary-policy

https://www.europarl.europa.eu/factsheets/en/sheet/86/european-monetary-policy
● France: fiscal policy
https://nzier.org.nz/about/economics-explained/fiscal-policy/
https://www.ecb.europa.eu/home/search/review/html/monetary-fiscal-policies.en.html

https://www.focus-economics.com/countries/france

https://www.france24.com/en/20190704-france-issues-first-10-year-bond-negative-interest-
rate

https://taxsummaries.pwc.com/france/individual/taxes-on-personal-income
https://taxfoundation.org/country/france/

● The conclusion

https://www.france24.com/en/business/20210823-france-targets-return-to-pre-pandemic
growth-by-end-of-2021

https://www.focus-economics.com/countries/france

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