Energy and Electricity Report France
- ID: 2138994
- February 2011
- Region: France
- 22 Pages
- The Economist Intelligence Unit
Initial conditions: France's economic performance has deteriorated in recent decades relative to that of many of its peers. Measured on a purchasing power parity (PPP) basis, French GDP per head stood at US$33,237 in 2009. This placed France 15th within the OECD (down from 12th place in 1990) and compared with PPP-adjusted GDP per head of US$46,470 in the US. Productivity across the economy as a whole is among the highest in the world. As output per hour worked in France is on a par with that in the US, the gap in income per head between the two countries reflects the under-utilisation of French labour. France has one of the lowest rates of employment in the EU and also the shortest working hours in the developed world after Sweden and Norway. Both factors can be traced to the misguided efforts of successive governments to reduce unemployment by restricting the supply of labour (for example, by cutting the age of retirement or reducing the length of the statutory working week). The current government has relaxed the constraints of the 35-hour week legislation, introduced incentives to encourage older workers to remain in the labour market and proposes to raise the retirement age. This
should help to raise employment levels and provide a lift for growth potential in the long run.
Demographic trends: Partly on account of generous family allowances and good nursery facilities, France boasts one of the highest birth rates in Europe. Even so, the fertility rate, at around two children per woman, is expected to remain below the replacement rate of 2.1, as a result of sociological trends (such as the rising length of time spent in education and increasing levels of female participation in the labour force). France, moreover, has one of Europe's largest immigrant populations, but the crude rate of net migration into France is now among the lowest in the EU per head of population. With the fertility rate remaining below the replacement rate and social resistance to immigration (particularly from outside the EU) set to subsist, much of the increase in the French population over the next 25 years will come from rising life expectancy. The pattern of growth will entail a change in the age structure of the population, with a diminishing share being accounted for by the under-16s and a rising share by the over-60s. The working-age population will stagnate in 2011-20, and begin to contract during 2021-30. Even so, the labour force should increase, owing to higher rates of participation. France's labour force participation rate is slightly below the EU average, so there should be greater scope for raising it than in countries where it is already high.
External conditions: France is a founding member of the EU, now the world's largest and most integrated regional market. Politically, France has long been the EU's most powerful member state, but its influence has started to wane as the EU's membership has expanded. Although perceptions of France's social model have improved given the country's relative resistance to weaker global economic conditions, this is unlikely to enhance the country's influence over the EU's direction, given that the French model tends to be associated with a lack of competitiveness. With many voters in France blaming EU-inspired liberalisation and the single currency for economic problems, the country is becoming a more recalcitrant member. Governments will espouse inward-looking policy stances by defending "national champions", promoting "Franco-French" mergers, bailing out ailing domestic companies and subordinating the EU's budgetary rules to domestic considerations. Nonetheless, among the political elites, the commitment to the EU and euro area membership remains strong. As the euro area's sovereign debt crisis unfolded in early 2010, the French government lobbied hard to secure agreement on two loan facilities—one of €110bn for Greece and one of up to €750bn for other countries in need. Although these lending facilities have brought short- and medium-term stability to the euro area, major uncertainties concerning the bloc's integrity remain. If France is called upon to make good its promises of financial assistance, public hostility to euro area membership could increase.
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