France-The Titanic that persevered.
The purpose of this paper is to empirically analyse and perceive knowledge about the French economy. It discusses about the macroeconomic trends as well as strategies that profoundly impacts the significant determinants that establish the economic ethos of a nation through various amicable and apt economic and developmental indicators such as GDP, GNP, National income , Per capita income , CPI , exports and imports followed by their deciphered analysis and interpretations that enable us to identify the lucrative financial solidity and resource consistency.To comprehensively analyse the macroeconomic variables of the French economy in within the time frame of 2008–2010, it is quintessential and imperative for us as individuals to be acquainted with Great Recession (2007–2009) for enhanced assimilation of the inquiry.
The Great Recession began in the greatest economy of the world, United States. It had specifically started in the housing sector with the failure of the people to pay back the housing loans. This led to a financial crisis due to the shortage of liquid funds with the banks, affecting the giant Citibank. The housing bubble sent shock waves to the US economy, thereby leading to a drastic fall in GDP resulting to a fall in the household incomes. The average spending by consumers decreased drastically. With less demand, there was bound to be less production and rising unemployment. The ramifications didn’t constrict to the United States, rather severely affected Europe leading to a sustained recession in the European economies.
Analysis of Macroeconomic Trends of France
France is the 7th largest economy according to the economic trends of 2020. It has recorded the world’s 20th highest GDP with $39,257 per inhabitant in 2020. It has a very diverse economy with the service sector dominating it by contributing 78.8% of its GDP in 2017. Paris, its capital is the world’s second most attractive tourist attraction and has one of the largest GDP in the world. Hence, France is well equipped with majority of the tools required to achieve economic development.
However, in 2009 France fell captive to the huge web of Great recession which had originally begun in the United States. The crisis had spread to Europe rapidly and France wasn’t an exception. Hereafter, we shall analyse the Great Recession in France with the help of various economic variables.
· Gross Domestic Product-Growth rate -
Gross Domestic Product is the total market value of all the commodities produced within the domestic boundaries of the country in a particular period of time. It serves as the gauge over the country’s well-being and it’s performance as an economy. They are compared with the prior periods to analyse if the economy is flourishing or contracting. Furthermore, it also helps to compare economies around the world.
France has a rather excelling and otherwise stable GDP growth rate as compared to most of the others. However, there have been dynamic fluctuations between the year 2007–2010. Following a virtual stagnation in 2008, the French economy had undergone its biggest post-war recession in 2009 due to the fallout of financial crisis and the rising unemployment.
Similar to various nations, France was influenced by the financial crisis of 2008. However, France fared better than other industrialized countries during the most noticeably terrible part of the crisis between 2008–2010. For instance, the Euro zone’s GDP fell by 4 percent, while France’s GDP just diminished by 2.2 percent. This flexibility is connected to France’s social insurance framework, which, through the exchanges it coordinates (47 percent of gross dispensable family pay in 2007) furnishes France with solid financial stabilizers. Notwithstanding, these stabilizers weigh contrarily on recovery. Beginning in 2012, numerous nations experienced financial recovery, where the analysis of the indicators of monetary action in France doesn’t show an evident recovery, or rather doesn’t show increased economic growth during this time.
To battle the financial crisis, French president Nicolas Sarkozy had declared a €26 billion recovery plan which would add up to an additional €15.5 billion besides the budget for 2009 and will augment France’s public deficit to 4%. It is comparable, to a degree, to Barack Obama’s proposition to stimulate the U.S. economy by putting resources into the country’s imperative infrastructure. Further proposition incorporate tax incentives for independent ventures just as facilitating limitations on building grants and government contracts especially with development and structural designing.
The government launched a “prime à la casse” program to support crisis-stricken automobile industry, where purchasers got a discount up to €1,000 for discarding old polluting vehicles and purchasing new environmentally friendly/ fuel efficient cars. As a result, vehicle deals in France in December 2008 were 30% higher than in December 2007 although considering the long term, the deals was still down 0.7%.
· GDP Growth rate and Unemployment Rate-
Arthur Melvin Okun, an American economist propagated a law that shows the simple relationship between GDP and Unemployment, that clearly depicts the inverse proportion of both the variables. The law states that a percentage increase in the unemployment rate causes a fall of 3 per cent of GDP rate. Unemployment is always a drawback when it comes to the nation’s national income and development.
These two variables portray the country’s development components for the world to estimate France’s economic growth. When unemployment rises, the production and consumption of goods and services decrease as less number of people work and less number of people consume both due to unemployment and lack of income respectively. Hence a fall occurs in the GDP rate.
The law stands true in the relationship of GDP and unemployment of France. It is clearly evident from the increase in unemployment by 1.67% is followed by a simultaneous fall in GDP rate by about 3%.
· GDP and Inflation-
As a matter of fact, an increase in GDP causes inflation over time as per the economic trends because people spend more money when inflation rate increases, considering the less valuable criteria in the future. Therefore, it causes a rise in the GDP in the short term that brings about further price increase. This is the basic relationship between GDP rate and inflation.
Following the stagnation of the French economy in 2006–2007, when the GDP trends began falling drastically in 2008, there is an increase in the rate of inflation. This lead to an increase in the consumer prices when France was on the verge of the Great recession. This worsened the case even more by decreasing the demand for commodities leading to a collective slowdown in economic activities across the economy, lasting for a year.
· Repo-rate and GDP-
Repo rate is the rate at which the Central bank of a country lends to banks for short period against government bonds. In case of recession in a country, the Central bank reduces the Repo rate so that the commercial banks have more funds to advance loans to the people. It is evident from the graph that the Repo Rate was considerably very high till 2007, however, there is a steep downfall in the repo-rate in 2008–2010. This was a method of Credit Control adopted by France.
· GDP and Exports-
A brief glance at a couple of indicators of globalization would show that France is a globalization champion. As per the WTO, France is the world’s 5th exporting country after Germany, China, US and Japan. What is maybe much more amazing is that Frances holds similar rankings for administrations exchange.
When a country exports its commodity to the foreign consumers, it earns a price for it which gets added to the GDP of the nation. Therefore, export earnings add to the GDP of a country. It plays a very significant role in the economic growth pf the country. When there are more exports, it denotes that the country’s factories have a high level of output as well as greater number of employed people in the country. Hence, we can see a unidirectional (direct) relationship between GDP and Exports. The huge significance and contribution of exports in the French economy (GDP) is evident by the high resemblance in the shape and trend of both the graphs.
This paper not only displays the real relationship between GDP growth and other macroeconomic variables. It also establishes relationship among a few variables and elaborates upon them. Besides that, what is most fascinating analysis done above is how economies form policies, reforms, credit control strategies to attain the ultimate goal of economic development. These interpretations are often vague because of the uncertainties and the unpredictability of the future conditions. However, all these macroeconomic variables are interconnected some or the other way. A change in one leads to definite change in the other, the change however could be minor or a major one depending upon the proximity of the relationship.
