Substantial demand stimulation in France and Italy in 2019: What could be the consequences?

In France and Italy, demand for goods and services will be boosted in 2019 by: Transfer payments to households and tax cuts financed by the fiscal deficit; Lower oil prices. The main question is to what extent the increase in demand will lead to an increase in production, given that France and Italy suffer from major supply constraints (poor competitiveness, low labour force skills, insufficient manufacturing production capacity) and the risk is that the increase in demand will lead mainly to an increase in imports. Looking at the reaction of production and imports to the increase in demand in the recent period in France and Italy, we find that an increase in demand since 2014 has been met by domestic production for 70% in France and 60% in Italy.