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To date, the impact of the CICE (Tax Credit for Competitiveness and Employment) has been patchy. The margin ratio of non-financial companies edged up slightly at the start of the year, but fell back in Q2, and investment continued to adjust. The chosen target range of salaries seems to be having a more pronounced impact on wages and employment than on profitability. The CICE is having a positive short-term effect, but the longer-term impact could be more finely-shaded than expected.
We foresee an annual real GDP growth at 0.5% in 2014. Economic activity is capped by various factors: the business climate; structural issues; and the high unemployment, production facility closures owed to the crisis. These constraints, although still present, should ease in 2015. If the uptick in Eurozone activity is confirmed, volume GDP growth could come in at 1% in France, largely thanks to the positive effects of the structural reforms implemented.
The French government has announced its new public deficit forecasts for 2014 and 2015. These are sharply higher, with a deficit of 4.4% of GDP (compared with the previous estimate of 3.8%) in 2014, and of 4.3% in 2015 (3% previously). The target of a return to a 3% deficit, required by the EU Treaties, has been deferred to 2017. The growth forecasts underpinning the draft Finance Act for 2015 are set at 0.4% in 2014 and 1% in 2015.
The ECB unveiled the details of its ABS and Covered Bonds purchases programmes that will last for at least two years, sticking with 'Plan A' as we expected. The ECB will purchase senior and guaranteed mezzanine ABS tranches in both primary and secondary markets. Retained securities will be included under some conditions, boosting the pool of potential interventions by some margin. All in all, Draghi mentioned a "potential universe of purchases up to EUR1trn" while maintaining a certain degree of constructive ambiguity.
This publication presents the economists' forecasts for interest rates, exchange rates and commodity prices, along with the Crédit Agricole Group's central economic projection.
The fact that things seem to be normalising in the US is not just a piece of luck. It is very probably the consequence of a series of past initiatives that have begun to bear fruit. Elsewhere, the sense of clarity is definitely poorer. In Europe, and especially within the Eurozone, the situation remains confused and prospects are bleak.
The fed funds target range was maintained at 0%-0.25%. The FOMC announced a $10 billion reduction in the pace of the Fed's asset purchases to $15 billion. Beginning next month, the Fed will buy $10 billion of longer-dated Treasuries and $5 billion of MBS. Asset purchases are expected to end next month. The economic assessment noted economic activity expanding at a moderate pace but significant underutilization of labor resources remains. Inflation expectations are stable but inflation is running below the Fed's longer-run objective.
ECO Focus – Edition October 9, 2014
France: sluggish growth of imports
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