The fragility of the French economy is striking

France’s economy may deceive: GDP has grown as much as Germany’s over the past 20 years; The unemployment rate has returned to record lows and the employment rate is higher than before COVID; The current account balance has on average been balanced over the last few quarters ; The yield spread against Germany remains very low; Corporate bankruptcies are at a historically low level. But closer examination of the state of the French economy reveals several worrying weaknesses: The growing inability of industry to meet demand. This results in a huge external deficit for industrial products, offset by a surplus in services (tourism) and by the repatriation of earnings by French multinationals. It also results in a deterioration in the quality of the economy and jobs; The transfer of the problems of other economic agents to the government. The government has footed the bill for propping up corporate earnings (through various tax cuts) and household purchasing power (via transfer payments to offset unemployment during COVID and then inflation). Companies’ healthy situation and the increase in household purchasing power therefore had the corollary of a deterioration in the government’s financial situation. But this equilibrium will become impossible to sustain if the ECB’s fight against inflation leads to a lasting rise in real interest rates; The situation in the labour market. Even though the employment rate has risen and the unemployment rate is low by past standards, the situation in the labour market is in reality very poor: hiring difficulties among companies reveal sectoral mismatches between labour supply and demand; children’s skills continue to decline, which points towards a further decline in adult skills; the employment rate shortfall relative to Germany or the northern European countries has not corrected, leading to shortfalls in per capita income and tax revenues and very high income inequality before redistribution; Declining productivity gains, which are now negative, due to a combination of underinvestment, an uncompensated decline in working time and low skills. Very low (zero?) potential growth is to be expected, which will exacerbate the government’s solvency problem.