THE REAL ECONOMY
Revisions made by INSEE appearing in the detailed national
accounts for the fourth quarter of 1999 show that the
deceleration of activity caused by the downturn in emerging
countries was limited and temporary. Indeed, French economic
growth was even and rapid throughout 1998 and 1999. As an
annual average, GDP growth was revised upwards by 0.2
percentage point to 2.9% in 1999, reflecting a revision of the
same magnitude to first quarter growth. The final growth figure
was only slightly lower than that recorded for 1998 (3.2%,
itself the result of a downward 0.2 point revision). In
year-on- year terms, GDP rose 3.1% in 1999, after 3% in
The economy remained buoyant in the first quarter of 2000,
with industrial production climbing 1.1% in February. The
12-month gain was 4.2%, against 3.4% in January.
As a whole, industrial activity rose further in April,
although business leaders surveyed by the Banque de France
indicated that its rate of increase was slower than in
Activity remains robust in the construction industry.
According to Ministry of Equipment statistics, the number of
housing starts over the first quarter was 10.7% higher than in
the fourth quarter of 1999.
Household consumption is still on a rising trend, despite a
slight downturn in March (-1.7%, or + 4.1% over 12 months).
Over the first quarter as a whole, household consumption of
manufactured products rose 2.2%, against a 0.3% gain in the
Consumption is being boosted by the high level of household
confidence. Following four months of stability, the summary
indicator of household sentiment posted another sharp
improvement in April, topping the historical peak of late
Expectations relating in particular to the future level of
unemployment are again much more favourable. The improvement in
the labour market resulted in a sharp decline in the
unemployment rate to 10.0% of the labour force in March, its
lowest level since January 1992 and 1.4 points below the level
recorded one year earlier.
Investment continues to benefit from a highly favourable
environment. The latest quarterly Banque de France survey of
the financial situation of companies bearing on the first
three months of this year shows an improvement to
satisfactory levels in almost all industries. Investment
expenditure accelerated over the quarter, and appears stronger
than in the corresponding period of previous years.
The presently intensive utilization of industrial productive
capacity is likely to provide an additional incentive to
invest. The capacity utilization rate was 85.9% in April, well
above its long-term average of 84.28%.
All in all, the economy is set to post annualized growth of
almost 4% in the first half.
The unadjusted provisional retail price index (1998=100) was
unchanged in April 2000, but registered a 0.2% decline on a
seasonally-adjusted basis. On a year-on-year basis, the
increase in the consumer price index fell back to an unadjusted
1.3% (after a 1.5% gain in March), while the
seasonally-adjusted index was up 1.2% (after rising 1.6% in
The indicator of underlying inflation which excludes
the impact of the cut in VAT rose 0.4% in April, or 1%
over 12 months (against a 0.7% gain in the year to March).
The rate of increase in industrial producer prices of
intermediate goods has accelerated, climbing 3.5% in the year
to March 2000 (after 3% in February). This was the strongest
gain recorded since October 1995.
MONTHLY BUSINESS SURVEY
According to the business leaders surveyed by the Banque de
France, industrial activity generally rose further in April,
but not as quickly as in March. While it was stable for
consumer goods, automobiles and capital goods, it continued to
grow for intermediate goods and fell somewhat in the agri-food
The capacity utilization rate continued to be very much
above its long-run average.
Aggregate demand showed another slight increase. The
buoyancy of the domestic market was underpinned by firm
inter-industrial trade and robust household consumption.
Foreign demand continued to strengthen, though not as much as
in recent months, mainly due to a slowdown in orders from the
Order books continued to be considered very well-filled on
the whole. Inventories recorded little overall change and
remained in line with desired levels, although they appeared to
be slightly below normal in the intermediate goods
The outlook for the coming months is very bright, with the
likelihood of an across-the-board increase in activity.
Commodity prices continued to rise. While this rise has
generally as yet only partially been passed on to finished
product prices, significant price increases have been seen for
several components of the intermediate goods industry.
Investment planned for 2000 went ahead as scheduled. It
mainly concerned the modernization of equipment, but was also
increasingly aimed at widening productive capacity.
Retail activity rose in April, but decreased slightly
relative to the previous two month period, which was affected
by the sales.
Permanent staff levels, which were stable in industry and
the retail industry, rose further in the construction and
market services industries. Several industries encountered
difficulty in recruiting, and skilled labour shortages were
reported in some high-growth industries.
The quarterly change in GDP forecast by the monthly
composite business indicator for the second quarter of 2000
remained unchanged at +0.9% (after an increase of about 0.9% in
the previous quarter). Trends in demand-related factors
continue to be favourable thanks to well-filled order books and
very good prospects for growth during the coming months.
Furthermore, the prospect of a slowdown in activity continues
to be slim, meaning that the French economy should continue to
grow in the months ahead.
THE BALANCE OF PAYMENTS IN FEBRUARY
The current account surplus doubled in seasonally-adjusted
terms from euro 1.6 billion ($1.5 billion) in January 2000 to
euro 3.2 billion in February, and despite a slight drop in the
traded goods balance. The balances on the services account and
in foreign investment income improved significantly on the
The unadjusted current account balance fell euro 2.7 billion
to euro 1.7 billion in February compared with January. This
reflected the disappearance of the current transfers
For the first two months of 2000, the current account posted
a surplus of euro 6.2 billion, euro 500 million less than for
the corresponding period in 1999. The surplus in goods and
services excluding travel declined euro 700 million to euro 1.7
billion. This was the result of a 15.3% increase in expenditure
that clearly outpaced that in receipts (13%). At the same time,
foreign investment income fell euro 900 million to euro 2
billion, with a simultaneous reduction in direct investment
income and portfolio investment income. In contrast, the
balance on the current transfers account rose euro 1 billion to
euro 1.2 billion.
The financial account posted a surplus of euro 5 billion in
Net direct investment deteriorated slightly relative to
January, to a deficit of euro 2.6 billion. The drop in French
transactions by non-residents was greater than for transactions
by French residents abroad.
Portfolio investment had resulted in net inflows of capital
in the preceding two months but registered a deficit of euro
6.2 billion in February, which is more in line with usual
trends. Residents' investment abroad rose to euro 12.9 billion,
including euro 4.1 billion in purchases of foreign shares and
euro 6 billion in purchases of money market securities,
contrasting with the euro 5.4 billion in net sales observed the
month before. Although non-residents' purchases of French
securities were lower, they doubled relative to January, to
euro 6.7 billion, of which euro 5.7 billion was accounted for
Other investments were characterized by a fresh rise in net
bank liabilities (euro 13 billion) and a euro 500 million
increase in reserve assets.
With a deficit of euro 1.4 billion for the first two months
of 2000, the financial account was almost balanced over the
period. The main difference relative to the first two months of
1999 was the sharp reduction in net portfolio investment
abroad, which was partially offset by the change in the reserve
REVISIONS TO 1999 DATA AND CHANGES IN
This time of year usually features revisions to balance of
payments figures for the preceding year to take account of
information that has emerged since the initial provisional
annual figures were published. This time the revision concerns
the past five years and is unusually large. Two factors are
responsible: firstly, the methodology relating to interest
flows on swaps has changed, resulting in their inclusion under
the 'derivatives' heading in the financial account; and
secondly, there have been changes in the methodology and
accounting linked to employees' remuneration.
The amounts recorded in the employees' remuneration item are
now the result of a statistical estimation that defines flows
better and relies on a wider gross basis (including employee
and employer welfare contributions). This change conforms to
recommendations made in the 5th IMF Manual. Related adjustments
are made to several other items in the current account in order
to include the consumption expenditure of individuals that
cross borders to work (travel), to impute Social Security
contributions (present transfers) and to trim earned income
from certain items to which they were wrongly posted (travel,
transfers of workers' savings).
This article was taken from the Banque de France's
Bulletin No.77, May 2000, available at www.banque-france.fr