Pestel France 2011

France

In-depth PESTLE insights

Publication Date: April 2011

Overview

Country Analysis Report: France Published 04/2011

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 2

The economy is buoyed by the services sector, but rising current account deficit and inflation remain a

concern

The French economy is one of the largest economies in the EU, with a GDP of $1.5 trillion (constant prices, 2000).

Although the economy shrank by 2.6% in 2009, it rebounded with a growth of 1.5% in 2010. The country’s well-developed

infrastructure and strong services sector are supporting the economy. The services segment contributed around 82.1% of

the GDP in 2010. It rose from €1.43 trillion in 2006 to more than €1.58 trillion in 2010, and is expected to reach around

€1.78 trillion by the end of 2013.

However, the economy faces huge challenges in the form of weak government finances, rising inflation, and widening

current account deficit. The total budget deficit for 2010 was €136.5bn ($194bn), around 9% of the GDP. Inflation has been

on the rise after it fell to 0.1% in 2009, increasing to 1.6% in 2010. It is expected to grow to 1.8% in 2011. The current

account deficit as a percentage of GDP was 2.7% in 2008, 2.9% in 2009, and 3.3% in 2010. In the present economic

situation, the state's deteriorating financial condition is putting additional pressure on the economy.

France scores high on human development, but rising unemployment is a concern

France ranks high in terms of social development. On the UN Development Programme's (UNDP) Human Development

Index for 2010, the country ranked 14th among 169 countries. Like most European nations, France is also facing the

challenges of ensuring social security for an aging population. The unemployment rate in the country is inching towards

10% after averaging 9.6% for 2009 and 2010. Income inequality in the country has increased and the education system has

failed to meet the changing requirements.

The country's minimum wage has consistently risen, but labor productivity has not increased by the same proportion. This

has made wage hikes unrealistic. Moreover, the government has initiated new measures to address unemployment-related

issues arising out of the present economic crisis. The government’s attempts to initiate labor reforms have been met with

public protests, which could result in political instability. The pension system was revamped in 2003, but the employability

of the older population is still limited. The government plans to increase retirement age from the current 60 to 62 by 2018

under the new Pension Act. The need to increase the contribution period is being felt, but the government’s efforts in this

direction have met with resistance.

Measures to encourage innovation underway, but R&D expenditure remains low

France has been traditionally known as a technologically advanced nation. The country’s total expenditure on research and

development (R&D) has been steadily declining as a percentage of GDP from 2001, and is far below the projected EU

target of 3%. However, France has been proactive in innovation by introducing research tax credit, innovation clusters , and

reforms to its university system. The country’s €35bn Special Investment Plan has also played an important role in

attracting capital, jobs, and talent into the country. There has been a steady increase in the number of public-private

laboratories in the country, reaching 214 in 2009. Under its higher education reforms, 90% of the universities in the country

will be autonomous by the end of 2011. The Special Investment Plan covers three priority areas: healthcare, nutrition, and

biotechnology; environmental urgency and eco-technology; and information, communication, and nanotechnology.

Overview

Country Analysis Report: France Published 04/2011

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 3

France is open to FDI, but labor market rigidities could hinder investment

France has been slowly liberalizing its economy by doing away with restrictions on investment in formerly governmentdominated

sectors. As a member of the EU, it provides a reasonably hospitable climate for foreign investment. The country

attracted inward foreign direct investment (FDI) of $65bn in 2009, with nearly 22,645 foreign companies operating in the

country and employing nearly three million people. The number of projects originating in emerging countries increased by

52% compared to 2009. In 2010, foreign companies based in France created two million jobs.

However, the government is yet to dispense with its interventionist practices, and there are deterrents in the form of a lack

of fiscal freedom or investment freedom. There are plans to exert tighter control over companies in which the state still has

a stake. In April 2011, a mandatory bonus scheme suggested by President Sarkozy was slammed by both unions and

companies, many of which see it as unnecessary state intervention

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