The issue of the efficiency of demand policies is again being raised in France
The French government has just decided to implement demand-stimulating policies: Increase in tax-exempt wages for companies that have the capacity to pay them; Government transfer payments to low-income individuals, tax cuts. Moreover , the fall in the oil price will lead to a decline in inflation and an increase in household purchasing power. Dem and for goods and services will therefore get a major boost in France in 2019. This once again raises the question of the efficiency of demand stimulation, at a time when France is suffering from supply constraints that are reducing the reaction of domestic production to increased demand: Poor cost competitiveness; Shortfall in production capacity; Major hiring difficulties; Low labour force skills. To what extent will activity be nefit from the stimulation of demand? We estimate that a 1% increase in aggregate demand in volume terms leads to a 0.55% increase in real GDP, which nevertheless translates into marked stimulation of growth in 2019.