Country wrap up France: A resilient growth in 2019

After a clear improvement in 2017 (2.4%), French growth slowed in 2018 to 1.7%. Facing a weak er international environment due to multiple factors (Chinese economic slowdown, slowdown in international trade, expansion of the Sino-US trade war, growing uncertainty around Brexit, rising political risks), French growth has progressively slowed down to 0.2% QoQ in Q2 only after 0.3% in Q1. Beyond the weakness of foreign trade due to the deceleration of world trade, th e slowdown in Q2 is due to a negative contribution from inventories combined with the surprisingly low consumption of households (0.2% QoQ ) given the stimulus package supporting household purchasing power enacted by the government in response to the yellow vest protests end of 2018 . Far from the wait-and-see attitude of households , whose savings rate s increased to 15. 4 % in Q1, French companies benefited from the one-off cumulation in 2019 of tax credit (CICE) with the permanent fall of employer social contribution on low -paid job to accelerate their investments (1.2% QoQ in Q 2). Supported by domestic demand, French growth should remain more resilient than th e one of the euro zone until end 2019 . After a sharp increase in 2018 (1.8% after 1% in 2017), inflation (CPI) has significantly slowed since end 2018 due to the fall in oil prices and the freezing of energy taxes (fuel, electricity and gas) and is expected to be 1.2% on average in 2019 . Due to numerous job creations favored by labor cost reduction policies ( PRS , CICE ), the French unemployment rate has been gradually decreasing since 2015, reaching 8. 6 % in Q2 2019, despite the reduction in the number of s tate-aided contracts and the proximity to the structural unemployment level (9.1% according to the European Commission), which generally makes it difficult to match the skills of workers with those sought. Despite the sluggish international environment, business-friendly policies and households’ fiscal stimulus should support French growth, so that , under the assumption of a managed no - deal Brexit by the end of October , French growth is expected at 1.3% in 2019 and 1.1% in 2020 . While France left the European Excessive Deficit Procedure mid-2017, the one-off cumulat ion of the corporate tax credit ( CICE ) with the permanent fall in employer social contribution on low -paid jobs should push the deficit slightly above the -3% threshold in 2019 at around -3.2% (after -2.5% in 2018). Significantly increased since the re classification of SNCF Réseau (railway company) as a public administration, the record public debt of 98.4% in 2018 is likely to continue to grow until 2020, close to 100% of GDP .