France: Europe’s weakest link

published 26 June 2014

The recovery in the eurozone has lost momentum. Activity in the manufacturing and services sectors has hit a six-month low, according to key surveys. France's performance was especially disappointing private-sector output has fallen in four months out of six this year. Meanwhile, Germany's closely followed indicator of business confidence is also at a six-month low.

What the commentators said

So what's gone wrong in France? The French national statistics bureau now reckons growth will reach just 0.7% in 2014, rather than the 1% the government has pencilled in. Two years of tax hikes, along with high unemployment and ongoing austerity, have undermined confidence and investment among consumers and businesses. Exports have not been strong enough to pick up the slack. These problems are counteracting "genuine, but piecemeal and contested attempts at reform", said Pierre Brianon on Breakingviews.

But even slow progress is still progress, said Capital Economics. Liberalisation of the labour market and corporate tax cuts, along with a fall in labour costs relative to other core countries, are helping. Companies are planning to invest more money over the next few quarters. Throw in a gradual export recovery as the overall eurozone outlook improves, and France "might even strengthen a bit towards the end of the year".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.