“The French economy continues to sink… and the public debt continues to soar”

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– Recession and crisis for the French economy

As was unfortunately predictable, French public debt reached a new historic peak in the first quarter of 2024. In this case, 3,159.7 billion euros, or 110.7% of GDP. Since the start of 2020, our public debt has exploded by 773.6 billion euros! And all this for what ? For an increase in GDP of 419.4 billion euros, inflation included! Yes, you are not dreaming: to obtain an increase in GDP in value of 419.4 billion euros, the French State in the broad sense increased its debt by 773.6 billion euros!

So 354.2 billion euros are missing! Since the third quarter of 2017, the large gap between these two variations is also dizzying: +904.3 billion euros for public debt, compared to +560.3 billion euros for GDP in value, enough to underline that the ineffectiveness of public debt (i.e. its low capacity to generate GDP) has sharply increased over the past three years. Obviously, it would have been difficult to do worse!

In 27 years, public debt has increased 3 times more than the French economy

Poor consolation, this inefficiency is not new. Thus, since 1997, public debt has increased by 153.9%, while GDP in value has only increased by 52.4%, a ratio of 1 to 3! For comparison, it should be noted that in Germany, from 2007 to the end of 2023, public debt increased by 64.1% while GDP in value increased by 70.4%. Enough to show that increasing GDP more than public debt is entirely possible. Unfortunately, France has not embarked on this path. Even more serious, like the recessive nature of the increase in tax pressure (see my column last week), the unbridled increase in public debt has absolutely not made it possible to increase the structural growth of the French economy, since it is obviously the opposite that has happened.

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The unemployment rate is likely to continue to rise, weighing on the French economy

But unfortunately that’s not all! Indeed, while consumer prices continue to rise, particularly in the food sector, business prospects fell sharply in June. Thus, the INSEE business climate indices and those of purchasing managers are unequivocal: the annual change in French GDP will become negative again from the second quarter of 2024 and certainly also during the following quarter.

Even more serious, the INSEE employment climate index literally collapsed in June, going from 102.6 to 99.8, thereby falling back into the zone of job destruction. In this context and as shown in the graph below, the category A unemployment rate could very quickly rise above 8.0%, compared to 7.5% currently and 7.1% at the start of 2023. Here too , the promise of full employment has evaporated like a puddle of water in the middle of a heatwave.

France is falling back into recession

Furthermore, in June, the INSEE household confidence index continued to decline. With a level of 89.4, it remains similar to the lows observed during the Covid 19 pandemic and during the yellow vest crisis. In addition, already very weak, the INSEE index relating to household purchasing prospects started to fall again in June, indicating that sales risk experiencing a serious disappointment. In this context, we must not turn a blind eye: France is indeed falling back into recession. And the political crisis that has been raging since June 9 is obviously not going to help the situation.

Upward risks on long-term rates and downward risks on corporate profits… The stock market would take the hit

This inevitable drop in French GDP will inevitably result in an increase in unemployment, but also in public deficits and debt… In this context, the interest rates on French government bonds will further increase significantly, leading to interest rates. interest of all credits (to households and businesses) in their wake. For the moment relatively calm in the face of the political crisis and the return of recession in France, the Stock Exchange (CAC 40) will inevitably end up taking umbrage. As for our savings, they remain threatened by all these excesses but also by the still very strong temptation of the French State to further increase the taxes which weigh on the savings and assets of the French. We must therefore remain vigilant.

Marc Touati, economist, president of the ACDEFI firm, author of 8 economic best sellers, including RESET II – Welcome to the world after, released in September 2022.

You can also find his video chronicles on his YouTube channel, which has more than 165,000 subscribers, including the latest: “France: towards a Greek crisis to the power of 10”