France - Competitiveness Pact: a slight boost to growth in 2014-2016
France suffers from a double cost and quality competitiveness problem, in connection with an often mid-range international positioning. On Tuesday 6 November, the government presented a "National Growth, Competitiveness and Employment Pact", which will implement some of the report's recommendations, the headline measure being a tax credit spread over three years, and not a direct and rapid reduction in payroll taxes.
- A dual competitiveness problem - Improving cost-competitiveness - Financing the tax credit - Improving quality-competitiveness - Impact on growth
Extract - Impact on growth
The tax credit cuts production costs. Businesses can pass on the reduction in several ways, notably through lower production prices or an increase in unit profits. Recent trends in margins suggest that businesses will clearly prefer the second option. For the non-financial companies concerned by the measures, which in our view amount to around 65% of all non-financial companies, the increase in profits driven by the tax credit will, all else being equal, amount to 11% in 2014, 5% in 2015, and 5% in 2016. The savings rate (the ratio of profits to added value) should thus pick up from 12.9% in 2013 to 15.8% in 2016.
This improvement in profits and all the measures to boost quality-competitiveness should lead to an increase in investment spending, which could rise by around 6% by volume in 2014 and 4% per year in 2015-2016.
Eurozone: unit labour costs
Unit wage costs increased more than in Germany over the past decade, at 1.9% per year (compared with 1.1% in Germany), with higher per capita wages increases (2.9% per year, as against 1.2%) and lower productivity gains (1.8% vs. 1.2%), resulting in a sharp deterioration in cost-competitiveness.