Why Jean Castex focuses on reviving the economy

Audio 04:05

By: Dominique Baillard Follow

Jean Castex, the new French Prime Minister is expected to announce the composition of his government on Monday. The priority of this new team is already fixed, it is the revival of the economy. How is the French economy doing today?

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His recovery is faster than expected. The Governor of the Banque de France confirmed this on Sunday evening with our colleagues from LCI. Some figures to demonstrate it: the PMI index of the IHS Markit institute which informs us about the morale of business leaders finally stood at 52.3 in June 2020 when it was only 40.6 in may. By switching back beyond the 50 mark, this indicates that growth is starting again. Fifty being the threshold at which an economy is no longer contracting but expanding. Note that our German neighbors are still in the 40s. This is a good surprise for a country that appeared a few weeks ago as one of the most abused by confinement. Because activity has been much more paralyzed in France than in Germany. Because public finances were already very degraded, always if we make the comparison with the first economy of the euro zone. It is therefore a country quick to recover that Jean Castex finds on his arrival in Matignon.

How to explain this resilience?

France is more focused on satisfying its domestic market than on export. This is partly an evil, since its trade balance suffers, it is chronically in deficit. But in the current configuration it is a bad thing for a good, because internal consumption has skyrocketed while exporter's order books are slower to fill, due to logistical bottlenecks and mainly because of the overall weakness of the world economy, two factors of slowdown for foreign trade which penalize very outward-looking countries. It is also thanks to the forced savings of the wealthiest and public aid to households that French consumption, the engine of the economy, quickly recovered. But the French economy is not out of the rut provided, the decline in GDP will no doubt be 10% this year, confirmed the Governor of the Bank of France.

Even before the appointment of Jean Castex, a new stimulus plan was already in preparation for this fall

We are talking about a 100 billion euro business assistance plan that will be completed in August. Public support will be crucial because, according to the forecasts of the Ministry of Finance, investment, the other engine of growth, will remain timid in the coming months, its overall level will remain below the vintage 2019. This plan will be turned towards new technologies, biotechnologies, hydrogen, the new hope of an alternative to petroleum or thermal renovation for buildings for collective use. The challenge is to reshape French industry by limiting the breakage as much as possible. Because the new Prime Minister has warned: the worst is yet to come, with bankruptcies and layoffs to be feared this fall. This is why the new government will have to adjust the support system for short-time working and businesses as well as possible. To remove it too quickly or too brutally could seriously relapse the French economy.

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• France
• French politics
• Economy
• Jean Castex