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The housing market continues to correct itself slowly. The fall is modest, and is far more limited than in most other European countries. How to explain this gradual correction and two-speed market? The answer is a combination of generally negative economic environment factors and positive structural fundamentals. The corrective trend looks set to continue in 2015 as prices edge slowly down.
Fears of seeing the Eurozone sink into deflation, against a backdrop of the spectre of the Japanese example, have propelled inflation centre stage. France has not been spared the general price downtrend and inflation has fallen substantially in the recent period, with prices rising by just 0.3% in the 12 months to end-September. In this issue, we aim to examine the causes of this slowdown in prices, or rather the accumulation of factors that have led to the current severe disinflation.
Russia is the leading importer of European pork, cheese, fruit and veg. Announced on 7 August, the Russian embargo exposes Europe's internal market to a risk of fruit, vegetable and milk production surpluses. France exports limited volumes of agricultural produce to Russia but could be affected by a return of goods on the internal market.
Latin America has experienced high growth over the past decade, with average GDP growth rates of 4.1% between 2003 and 2013. Yet for a number of years, Latin America's economies have been slowing. External demand and commodity prices are providing less support, and the region's GDP growth will hardly exceed 1% this year. The external constraint is again weighing on the region's economic performance, but domestic factors also underlie the slowdown.
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.
ECO Real estate – Edition October, 2014
France: Existing housing sales and prices
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