France: Increasing purchasing power in 2019 and 2020!
According to French Public Accounts Minister Gérald Darmanin, purchasing power should stay firmly on an upward trend, particularly after the “yellow vests” stimulus measures that boosted purchasing power in 2018, with a 1.4% increase. But it is in 2019 that most of the increase in the purchasing power of the French should be concentrated, following this demand-oriented economic policy (“yellow vests” measures and tax cuts). INSEE and the government are expecting a 2.1% increase this year and 1.4% for 2020.
This increase, attributed to the tax cuts decided after the movement of “yellow vests” and then at the end of the great “national debate”, makes it possible to “support activity”, stressed Gérald Darmanin, considering that this policy had allowed “a kind of economic recovery”. Asked by senators about the impact of this strategy on public accounts, the minister assured that the government had “the means” to achieve this tax cut and promised that the public deficit would indeed be “around 2%” of GDP next year. Nevertheless, on Tuesday, French supreme body for financial control, the Cour des Comptes, expressed doubts about the executive's ability to meet this objective, notably by pointing to the vagueness surrounding the financing of the EUR 5 billion in income tax cuts promised at the end of the “national debate”.
At the end of the day, it appears that the growth in purchasing power should stimulate domestic demand and therefore the French growth in activity. The forecasts, which are still pessimistic in the French case, are 1.3% for 2019 (Banque de France), a relatively lackluster figure. On the other hand, the tendential decline in joblessness in France could reduce the unemployment rate to 8.3% of the active population at the end of the year according to INSEE, proving that it is possible to create jobs in a period of low growth.
Julien Moussavi, Head of Economic Research
Sources : Public authorities, INSEE, Beyond Ratings