COUNTRY WRAP UP FRANCE: TOWARDS A TEMPORARY REBOUND IN GROWTH IN 2019

After a marked improvement in 2017 (2.3%), French growth slowed in 2018 to 1.5% on average. This slowdown is explained by lower domestic demand, mainly resulting from the slowdown in household consumption and, to a lesser extent, from less vigorous investment. Foreign trade, on the other hand, boosted growth, thanks to significant aircraft and naval deliveries at the very end of 2018 . The expected slowdown in inflation in 2019 as well as the economic and social emergency measures that the government has granted to the yellow vests should markedly strengthen the purchasing power of low-income households with the highest propensity to consume, thereby boosting private consumption. Given the sharp rise in oil prices and the increase in energy taxes last year , inflation (CPI) accelerated significantly in 2018 , reaching 1.8% on average versus 1% in 2017. The collapse in oil prices in Q4 2018, combined with the freeze on energy taxes (fuels, electricity and gas) in 2019, should pave the way for a sharp fall in inflation (CPI), expected to reach 1 % in 2019. Owing to strong job creation, supported by policies aimed at reducing labour costs (CICE tax credit, Responsibility and Solidarity Pact), the French unemployment rate fell sharply in 2017 to 9.1% in December, where it stabilized throughout 2018. The slowdown in the downward trend in the unemployment rate can be explained by the fall in the number of subsidised contracts decided by the government and by the slowdown in job creation due to the fact that the unemployment rate is close to its structural level (9.1% according to the European Commission) complicating the matching of workers' skills with those sought. French growth should therefore rebound temporarily to 1.8% in 2019 , before slowing down to 1.4% in 2020 . France exited the European excessive deficit procedure in June 2017 and is expected to achieve a stable deficit of -2.7% in 2018. Nevertheless, the social measures granted to the yellow vests, combined with the first permanent reduction in employers' social contributions on low wages, should temporarily push the deficit up above the -3% threshold, to -3.2% in 2019. The public debt also increased considerably following SNCF Réseau's reclassification as a public administration, reaching a record of 98.9% in 2018. It is likely to continue to grow until 2020 .