Measuring Macron: Is France’s leader rebooting the economy?

PARIS - 2 May 2018: French President Emmanuel Macron swept into office last May on a pledge to create jobs and improve the lives of workers by rebooting the country’s economy.

A year on, annual economic growth has picked up — closing the gap with Germany and pulling away from other major European powers such as Britain and Italy. The pace of new business openings have increased sharply and improvements in the jobs market have left some employers warning about skilled workers being in short supply.

But economists say the rosier picture is due at least in part to stronger growth across Europe as well as policies put in place by Macron’s predecessor, Francois Hollande.

To help measure Macron’s impact on the economy, Reuters has compiled a graphic showing a dashboard of indicators that will update as new data is released over the course of his presidency.

(Graphic: Track Macron's impact on the economy - tmsnrt.rs/2JH3um9)

The data show some early signs that the president’s policies are having an effect among entrepreneurs and in the labor market. But there has been little change in disposable income for workers and efforts to reverse years of declining competitiveness don’t appear to have borne fruit.

Macron’s ability to re-invigorate the euro zone’s second-largest economy will be a critical factor in how his success is measured at home. It will also shape how much influence he can bring to bear in Europe, where he is trying to convince Germany of the need to further overhaul economic and monetary union to bolster the euro zone against future crises.

While the economy grew quickly after Macron’s election, it slowed at the start of this year due in part due to one-off factors that curtailed consumer spending, according to figures released Friday. Economists said they expect growth to return to a healthy clip.

Macron has repeatedly said his reforms would start to have a significant impact 18 months to two years into his presidency. An Elysee adviser told Reuters there was no time frame for improving the economic outlook. “That’s why we’re not cheering about the current upturn, because we’re perfectly aware that to a large extent it’s down to the economic context.”

FALLING UNEMPLOYMENT
When Macron took office in May, the French economy was starting to rebound after years of unimpressive growth. That gave him a firm footing on which to confront France’s historically muscular trade unions as he seeks to reshape economic and social policy.

A former investment banker, Macron had been a minister in the Hollande’s government, before quitting to launch his own political movement. Barely a year later, aged 39 years, he led it to electoral victory casting himself as an agent of change, of ‘neither of the left nor the right.’

Macron quickly moved to start overhauling France’s labor regulations to tackle unemployment, which was well above the eurozone average.

Macron’s government has provided employers more freedom to hire and fire through a loosening of labor rules, among other measures.

Initial signs appear promising for Macron. Overall unemployment in France is down to 8.9 percent, from 9.4 percent when he took office and below the 9.1 percent average for the country over the last 20 years, according to France’s INSEE statistics agency. Youth unemployment is falling at an even faster pace.

Companies also are more frequently hiring on permanent contracts as opposed to short-term ones. The level approached 49 percent in February, a level only rarely seen over the past two decades, according to Reuters analysis of data from the ACOSS national payrolls agency.

However, economists say the increase in permanent contracts appears only partly due to Macron’s policies as numbers were rising before he assumed office. A shortage of skilled labor is also helping workers negotiate more favorable terms.

START-UP NATION

The most marked difference is in the rate at which new businesses are starting up. Macron had made a high-profile push to encourage entrepreneurship, promising within weeks of his election to transform France into a “nation of start-ups.”

In its first budget, Macron’s government scrapped a wealth tax long-opposed by entrepreneurs and set a flat 30 percent tax for all capital income.

The number of new businesses opening spiked in the immediate aftermath of Macron’s election as president and the rate has continued to grow at a double-digit pace.

The business community say Macron’s arrival has brought about a dramatic change in attitude to entrepreneurship in a country where people traditionally have been reluctant to take the risk of starting new businesses.

Landing a job at a bank or a household brand is no longer the sole badge of success for graduates of top business schools, such as HEC, said Olivier Millet, the head of venture-capital lobby France Invest.

“There’s a political message when HEC students are not going into finance or marketing but into entrepreneurship,” he said. “You haven’t succeeded in life unless you’ve started a company.”

The reforms have prompted some political opponents to dub him “president of the rich,” an idea he dismisses saying he has no problem with wealth as long as it benefits the broader economy.

PURCHASING POWER
Another key factor for voters and the economy is whether French workers notice any improvement in their wallets.

So far, households have seen little increase in disposable income, according to INSEE, the statistics agency. And, what increase there has been in wage growth has largely been offset by higher inflation, leaving gross disposable income growth stagnant since Macron took office.

Macron has introduced some tax cuts, such as reductions to workers payroll tax, but they are being phased in over time to ease the impact on public finances.

“A lot of workers say the economy is growing again, but there’s no reduction in inequality, so there’s a huge demand for better distribution,” said veteran union boss Jean-Claude Mailly, who retired last month as head of the Force Ouvriere.

People are “getting impatient,” he told Reuters.

Macron’s government estimates its tax reforms will add 1.6 percent to gross domestic product by 2025 and create a quarter of a million jobs.

FOREIGN INVESTMENT

France has also seen a significant increase in foreign direct investment, which reached a decade high last year, according to the central bank.”What we saw in 2017 is not so much linked to the election and change of government as the result of the previous two, three, four years,” said Pascal Cagni, the former Europe head of Apple and now chairman of Business France, which promotes the country among foreign businesses.

But Cagni said he believes Macron’s policies will encourage foreign investment to continue to grow. “That’s why I am extremely positive about the outlook.”

The competitiveness of French firms overseas, however, has not improved. French exporters are still struggling to claw back market share lost during a twenty-year decline in competitiveness.

Economic recovery requires consistency, said French central bank head Francois Villeroy de Galhau. “That’s true for many things in France’s economy, but especially for competitiveness.”